In what could be seen as a sign of revival for the corporate bond market, Tata Capital’s public issue of non-convertible debentures (NCDs) has received an oversubscription of about Rs 800 crore till Friday on the back of participation from high networth individuals (HNIs) and institutions. The issue that opened on February 2 closes on Tuesday.
Fearing a tepid response to the NCD issue, the non-banking financial arm of the Tata Group had planned to raise at least Rs 500 crore with a green-shoe option of an additional Rs 1,000 crore. According to a source familiar with the development, the company has received a subscription of Rs 2,300 crore till Friday.
“Nobody, including the bankers to the issue, expected such a good response,” said the source. Citigroup Global Markets India, ICICI Securities and DSP Merrill Lynch are the lead managers to the issue.
The company has so far received about 75,000 applications from retail investors against the limit of 100,000 applications. The participation of retail investors is expected to inch closer to the limit on the last two days of the issue.
The company — which provides services in areas such as capital market, housing finance, assets and vehicle financing, retail finance, merchant banking and private equity investment — is offering 12 per cent per annum for the annual and cumulative interest payment options.
“It is definitely a small revival of the corporate bond’s primary market,” said N S Venkatesh, managing director and chief executive officer of IDBI Gilts. “HNIs and other people who have burnt their fingers in the equity market are now moving to government securities and corporate bonds,” he added.
Currently, the yield on the 10-year benchmark government bonds is around 6.24 per cent, about 100 basis points less than what it was three months ago. The Reserve Bank of India has cut the repo rate, the policy rate at which it lends to other commercial banks, by over 300 basis points in last three months. Yields have come down in line with the changes in the interest rate cycle. At present, corporate houses are paying 250-300 basis points more over the risk-free yield on papers of same maturity. They are still paying over 10 per cent, reflecting the lack of confidence in the money market.
Reliance Industries (RIL) recently raised Rs 1,000 crore in two tranches through NCDs. For bonds (worth Rs 500 crore) having a three-year maturity, RIL will pay 10.10 per cent annually, while for bonds (worth Rs 500 crore) with a 10-year maturity, the interest rate will be 10.75 per cent.
