Private power producer Tata Power plans to issue Rs 1,500 crore of perpetual bonds in the domestic market. The issue is expected next week.
The company is believed to have appointed Standard Chartered Bank as the lead manager for the issue. According to market sources, the company was in talks with at least five merchant bankers to appoint the lead book runner.
Perpetual bonds do not have a maturity date and are not redeemable, unless the issuer wishes to exercise a call option after a certain period of time. They are categorised as hybrid capital, since they have the features of both equity as well as debt.
“Looking at current market conditions, the issue is likely to be priced at around 11.50 per cent, payable semi-annually,” said a senior official with a domestic brokerage. Corporate bodies may now have to pay higher prices to raise funds, owing to the recent policy rate increases, he said. The company may offer a step-up option of 200 basis points if the bonds are not called for redemption after 10 years. The rating for the debt instrument is currently awaited.
The Reserve Bank of India had, on May 3, raised key policy rates by 50 basis points to tackle rising inflation. Yields on the 10-year, 7.80 per cent government bond, which serves as the benchmark for corporate debt issuances, have been in the range of 8.20-8.40 per cent levels since then.
“As a growth-oriented company, we are always looking for methods to raise funds,” said S Ramakrishnan, executive director-finance, Tata Power. He however, declined to spell out the details of the issue.
The Tata Power issue is expected to be similar to the recent bond issue of another Tata Group company, Tata Steel, which had issued Rs 525 crore of perpetual bonds at a coupon rate of 11.5 per cent, payable semi-annually. In March 2010, Tata Steel had also issued Rs 1,500 crore of perpetual bonds priced at 11.80 per cent and callable after 10 years. J P Morgan and ICICI Bank were the lead managers for the issue.
Last month, Tata Power had raised hybrid capital worth $450 million by issuing overseas bonds at 8.5 per cent, payable semi-annually.
