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| Greek crisis takes toll on India Inc's fund-raising |
| BS Reporter / Mumbai Feb 10, 2010, 00:14 IST |
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After Bank of Baroda, BoI keeps global bond offer on hold; IDBI has second thoughts.
Hardening risk spreads in global markets after the economic crisis in Greece, Portugal and Spain has started taking a toll on fund-raising by Indian banks and companies. Bank of India has became the second public sector bank to put its bond issue ($ 500 million) on hold due to volatile market conditions.
Last week, Bank of Baroda decided to keep its overseas bond issue in abeyance as the pricing did not meet its expectation.
The bank postponed its overseas bond issue due to the “current cost factor”, a BoI executive said on condition of anonymity. The bank was planning to raise about $ 500 million through medium-term notes (MTN).
“When the market improves, the bank will come back,” said the executive. Barclays Plc, Citigroup Inc, Deutsche Bank AG, HSBC Holdings Plc and Royal Bank of Scotland Group Plc were hired to manage the sale, said a person familiar with the matter.
The economic woes of Greece, Portugal and Spain have raised questions over global economic recovery. The result of this is that risk spreads over interest rate benchmarks like the London Inter Bank Offered Rate have moved up in the last one month. Credit spreads for Indian paper have also moved up. For ICICI Bank, the spreads have risen 37 basis points (bps) to 210.48 basis points in a month. For Tata Steel, the rise is 41 bps to 561.66.
IDBI Bank, another public sector bank, also plans to raise funds through medium-term notes, but has not finalised the timing. A senior IDBI bank official said, “The present pricing is not attractive. Also, we are not in a hurry to raise funds. We are in talks with the bankers to the issue (HSBC and Barclays). We will tap the market when interest rates become affordable”.
A senior State Bank of India official dealing with global issuances said the market was concerned over India’s fiscal deficit and the high debt to GDP ratio. This is captured in credit spreads. For example, spreads over the benchmark for SBI have gone up by 50 bps to 215-220 bps.
While the market is concerned about the country’s fiscal health, the rise in risk spreads is not only for Indian banks and companies. There is an overall risk aversion and the spreads will move up till there is clarity on resolving the economic woes of these three countries, say market analysts.
Jayesh Mehta, the country treasurer and head of fixed income at Bank of America, said the rise is risk spreads was an outcome of the unease about South European countries. This was a bigger concern and not specific to India, he added.
Asked about Shipping Corporation of India’s plan for a $ 260-million dollar loan, an SBI (the arranger for issue) official said the company would go ahead with the issue as pricing would happen at fine rates.
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