The Hindu Business Line : Banks, FIs queue up for bond issues

While corporates have chosen the foreign currency route to raise long-term debt through the recently re-opened ECB/FCCB (external commercial borrowing/foreign currency convertible bond) route, banks and financial institutions are opting for the bond market, as they have been barred from accessing the overseas market unless they are part of the steel or textile-restructuring package.

In the pipeline to raise domestic debt are the housing finance majors, HDFC with Rs 250-500 crore issue, and LIC Housing Finance with Rs 250 crore. Several private banks are also in various stages of negotiations to raise five to ten-year debt, which includes Lord Krishna Bank about Rs 50 crore, IDBI Bank Rs 100 crore, Catholic Syrian Rs 100 crore, United Western Bank Rs 60-70 crore, Development Credit Bank and public-sector, UCO Bank Rs 50-100 crore, said corporate dealers. Indian Overseas Bank is said to have concluded Rs 200-crore issueon Wednesday, said corporate bond dealers.

Most of the bonds will be of five to ten-years maturity with yielding returns of 5.85-5.95 per cent in the five-year segment and 6.10-6.25 per cent in the 10-year segment to investors.

Earlier, large public sector banks had raised funds in the bond market — Bank of Baroda Rs 300 crore, HDFC Bank Rs 400 crore, Canara Bank Rs 250 crore and Bank of India Rs 350 crore. Banks typically raise resources towards year-end to shore up their capital adequacy ratios.

Trading interest is said to be reviving in the corporate bond market with buyers showing bidding interest after a lull in recent months. This coincides with the newfound confidence in the G-secs market witnessed on Wednesday, which traded volumes of over Rs 4,000 crore after a lacklustre spell of about two months.

There are expectations of softening of yields in the corporate bond market. The yield on corporates bond compared to Government bonds of same maturity is expected to come down, said Mr M.S. Gopikrishnan, Senior Vice-President, IDBI Capital Markets, a prominent bond house. The difference is now 0.95 per cent which has historically been at 0.5-0.55 per cent.

In recent months corporates have shied away from the bond market and are instead tapping foreign funds through the ECB/FCCB route where they can access funds at a lower cost. The companies to have done so include Tata Motors, Indian Hotels and Reliance Industries among others. The Government had closed the ECB window in November 2003 and reopened it in January 2004 with some caveats.

Another dampener in the domestic debt market is the heightened regulatory requirements in the form of listing and disclosure.

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