Primed for primary issues

OUTLOOK/CORPORATE BONDS

The spread between the triple A rated five-year paper and corresponding gilt is currently around 65-70 basis points.

While primary activity is yet to gain pace and most of the issuers are in listing mode, the Reserve Bank of India has issued final guidelines for investment by financial institutions in non-government debt securities.

It has set a ceiling of 10 per cent of financial institution's total investment in debt securities.

While these guidelines would come into force on April 1, 2004, the institutions had been given a transition period to comply with the norms, considering the time required by the issuers of debt securities to get their existing unlisted debt issues listed on the stock exchanges, an RBI notification said.

Another factor that might lead to a rush in the debt market is the revision in the capital adequacy norms of primary dealers.

As per the revised guidelines on capital adequacy standards and risk management for primary dealers (PDs), the RBI has said that PDs are required to maintain a minimum capital to risk-weighted assets ratio (Crar) norm of 15 per cent on an ongoing basis.

Commercial paper mart starts humming

Commercial paper market is gradually seeing some activity, if not in the primary side, definitely so in the secondary segment.

This is because investors who are finding difficulty to arrive at a view on the long-term interest rates are returning to invest in commercial paper to gain on yield differential in short term.

The outlook for the longer term has become all the more difficult with inflation ruling above 6 per cent.

Last week, LIC Housing Finance raised Rs 100 crore on Monday through commercial paper issues, money market dealers said.

The company raised Rs 25 crore by placing six-month commercial paper at 4.9 per cent and Rs 75 crore by issuing one-year paper at 5 per cent, they said. The papers were placed with two mutual funds.

Chambal Fertilisers also raised money for 90 days at 5.08 per cent.