The Industrial Development Bank of India (IDBI) has entered the private placement market to raise Rs 500 crore at coupons slightly higher than its competitor, the Industrial Credit and Investment Corporation of India.
The move also indicates the firming of interest rates as the FI is offering a 75 to 100 basis points higher coupon over its last Omnibond issue which closed on December 15, 1997.
IDBI is offering 13 per cent for five years against the 12 per cent offered in the last private placement issue.
Although IDBI is offering a higher interest rate than ICICIs private placement bond issue, the annualised yield of the latter is higher due to the higher frequency of interest payments. However, IDBI is expected to use the outright coupon as a selling point.
According to market sources, IDBI is entering the private placement market at a time when its retail issue of Rs 1,500 crore is to open for subscription within the next fortnight. Besides it is offering higher rates and also upfront incentives. All these factors indicates that the FI is desperately in need of funds.
This year IDBI decided to start a new series of private placement, Omnibond Series 98/A, instead of the Omnibond series followed by Roman numbers.
The FI will appoint merchant bankers on a commitment basis whereby whosoever can get commitment of or over Rs 50 crore will be the merchant banker to the issue. IDBI is offering four instruments having three, five, seven and 10 year maturity, each payable annually without any put and call options.
The three-year paper offers 12.5 per cent without any upfront incentive while the five-year paper offers 13 per cent with an upfront incentive of 0.20 per cent. The seven-year paper offers 13.25 per cent with an upfront incentive of 0.25 per cent and the 10-year paper offers 13.50 per cent with an upfront incentive of 0.30 per cent.
With this, IDBI is offering interest 25 basis point higher than that offered by ICICI, which currently offers 12 per cent for three years, 12.75 for five years, 13 per cent for seven years and 13.25 per cent for 10 years.
Consequently, the market is expected to give a better response to ICICI and IFCI as both are offering competitive rates against IDBI, said a merchant banker.
The annualised yield of IDBI for five years is 13.06 per cent against ICICIs 13.16 per, for seven years IDBI offers 13.31 per cent against ICICIs 13.42 per cent and for 10 years IDBI yield amounts to 13.56 per cent against ICICIs 13.69 per cent.
Against this, IFCI which is also currently in the debt market, is offering competitive rates of 12.4 per cent for three years, 13.5 per cent for seven year with a put and a call option at the end of five years and 13.75 per cent for 10 years. The Omnibond Series 98/A opened for subscription on January 5 and will close on January 16.
