The Sardar Sarovar Narmada Nigam Ltd (SSNL) has decided to retain the oversubscription up to Rs 100 crore on its high-cost bond issue.
In fact, market circles were surprised that SSNL chose to retain oversubscription at an interest rate of 17 per cent at a time when the interest rates have been falling across the board.
The issue aggregating Rs 150 crore has been oversubscribed one-and-a-half times within 15 working days after opening on April 9 this year.
The bond issue with a face value of Rs 50,000 and a tenure of 7 years carries a coupon rate of 17 per cent payable half-yearly. The yield to maturity (YTM) works out between 18.15 per cent and 18.49 per cent.
The interest is exempted from tax under section 54 EA 54 EB and Section 88.
In fact, the SSNL issue has benefited from the fairly good liquidity condition in the banking system when banks are looking for quality paper to park their excess funds, said merchant banking sources.
However, retaining high-cost funds was not prudent on the part of SSNL, the sources said.
Earlier, the Steel Authority of India (SAIL) decided to cut the coupon rate on its bond issue at 14.75 per cent to 14.5 per cent.
The Industrial Credit and Investment Corporation (ICICI), which floated an issue of Rs 750 crore with a greenshoe option of Rs 750 crore, retained oversubscription worth only Rs 50 crore though it garnered nearly Rs 2,000 crore.
The SSNL move, especially when the bonds enjoy tax benefits, is not prudent as it could raise funds at even lower rates, said the merchant bankers.
However, unlike the ICICI bond which has a AAA rating, SSNL only has a AA rating with a structured obligation.
That apart, SSNL, unlike ICICI which is market savvy, cannot afford to refund the oversubscription and hope to tap the market again in the future.
Market sources, pointing out the series of steps taken by the Reserve Bank to reduce the interest rates, said SSNL could have tapped the market one month down the line at a much cheaper rate.
