Bank of India (BoI) has entered the private placement market to raise Rs 100 crore at 12.5 per cent for seven years while the Industrial Development Bank of India (IDBI) has decided to raise Rs 500 crore at 13.5 per cent for five years.
Market circles are surprised by the differences in the rates offered by these two entities despite both being rated AAA.
BoI, which aims to raise Rs 100 crore with a 100 per cent greenshoe option, entered the debt market on Monday. Sources from BoI said that the bank is testing waters by offering such fine rates, and has thus decided to limit the size to Rs 200 crore. The bank is raising funds to boost its capital adequacy. Some merchant bankers are understood to have expressed their inability to raise funds at such a low rate.
Meanwhile, IDBI has decided to enter the private placement market on May 25 to raise Rs 500 crore with a 100 per cent greenshoe option. This is the first bond issued by IDBI in the private placement market during the current fiscal.
The financial institution has decided to offer four options to investors which include monthly, semi-annual and annual interest payment. All these three options will have a face value of Rs 10,000. The fourth option to investors is the zero per cent coupon, which has an annualised yield of 13.53 per cent, and a face value of Rs 18,860. On the monthly interest payment option, IDBI would pay 12.75 per cent, and the annualised yield would be 13.52 per cent. For the semi-annual interest payment option, the interest would be 13.10 per cent and the annualised yield would be 13.53 per cent while for the annual plan, the interest rate would be 13.50 per cent.
Bonds offered by both IDBI and BoI do not have any put and call options.
Meanwhile, Industrial Credit and Investment Corporation of India (ICICI) is also in the private placement market for raising five year resources at a cost of 13.5 per cent and seven year funds at 13.75 per cent.
