Non-Slr Papers Unlikely To Wind Down

Yields on non-statutory liquidity ratio papers are not expected to come down much this week. Though the UN chief weapons inspector has given a clean chit to Iraq, the event risk of the US launching a unilateral attack on Iraq persists.

There will be more sellers than buyers of corporate bonds each time yields soften by 5-10 basis points. Trading in the market will continue to be choppy. The benchmark five-year Hindalco paper, which last Saturday was quoted at 6.75-7.00 per cent, is unlikely to be dealt below the yield of 6.90 per cent. The spread on this instrument over corresponding maturity gilt on the last trading day of the previous week was 65-70 basis points.

However, this spread is unsustainable and it will go up to 80-90 basis points. Given the event risk, corporates will postpone their borrowings as the current yield levels are not attractive for tapping the market.

Buybacks

In fact, corporates are buying back their papers. Among others, Hindalco itself, Grasim, Tata Engineering and Tata Steel have resorted to buyback of their bonds.

New issues

The Andhra Pradesh Power Finance Corporation Ltd is expected to raise Rs 200 crore with an unspecified greenshoe option through non-convertible debentures.

This issue has two options: a seven-year issue with a five-year put/call option at a coupon of 10.70 per cent and a ten-year issue with a seven-year put/call option at a coupon of 10.90 per cent.

Not much activity is seen in the commercial paper (CP) market. Secondary market yields of CPs maturing in March 2003 were quoted at 6.15-6.25 per cent last week as against month-ago levels of 5.60 per cent. Hence, corporates will find it cheaper to raise funds at through Mibor-linked non-convertible debentures and working capital demand loans.