Belying expectations, Hudco has fixed a higher cut-off coupon of 12.5 per cent to 13 per cent for its Rs 500-crore private placement issue.
The result is expected to dampen the enthusiasm of corporates who have taken to book-building to determine competitive coupon in an uncertain market.
According to sources, "Hudco has fixed a cut-off of 12.5 per cent and 13 per cent for the taxable portion of Rs 400 crore maturing in the seventh and tenth year respectively." The cut-off for the tax-free portion worth Rs 100 crore is fixed at 8.75 per cent.
"The whole purpose of the book-building has been rendered useless. Hudco has given an indicative band of 12 per cent to 12.5 per cent for bidding.
However, it seems that it didn't help them to raise money at any cheap rate," a merchant banker said. Earlier, merchant banking circles were expressing the view that the corporation would be able to clinch the deal for a lower coupon of 12.2 per cent.
Sources said that Hudco attracted around Rs 880 crore worth bids. However, half of it was for the comparatively small tax-free portion.
"We have decided to return the oversubscription amount. However, we will approach the government to enhance the limit of tax-free portion," sources added.
According to merchant bankers, the corporation's will also affect the Industrial Development Bank of India's (IDBI) plans to raise Rs 500 crore at a rate of 11.75 per cent to 12 per cent. The development bank was planning a bond issue with five-year maturity towards the end of this month.
"Hudco's cut-off rates prove that finer rates like 12 per cent and below are too ambitious. This is true even for +++ A rated corporates.
They may be able to raise at 12.20 per cent, or at the most at 12 per cent," opined an investment banker.
Unlike other corporate bond issues, the corporation helps the priority sector and housing finance lending targets of the banks. Moreover, they don't have to worry about the non-performing assets also.
"If Hudco couldn't attract enough commitments with these sops, it would be even more difficult for others," a merchant banker said.
However, merchant bankers are watching the fate of the Rs 150-crore Hindustan Aeronautics Ltd debt issue which has opened for book-building last week.
The +++ A rated issue also has an indicative interest band of 12 per cent to 12.5 per cent for bidding.
