12.5% Hal Paper Pushes Term Rates To A New Low

Hindustan Aeronautics Ltd (HAL) has fixed an interest rate band of 12 to 12.5 per cent for its five-year bond issue, thereby driving down term money rates further. Industrial Development Bank of India (IDBI), which has a triple A rating like HAL, had raised money at 13.5 per cent.

With HAL raising funds through the book building route in the range of 12-12.5 per cent, term interest rates have fallen to a new benchmark, sources say. The plunge in interest rates follows a 100 basis point cut in the Bank Rate to 10 per cent on June 26.

The HAL issue, slated to opened on August 11, also coincides with the eight-year Rs 3,000 crore Union government paper. The cutoff announced by the Reserve Bank of India will give a signal about the interest movement and also a direction about bidding to the investors, said market sources.

The HAL issue is rated by ICRA for Rs 150 crore and the company plans to mop up a principal amount of Rs 100 crore with a greenshoe option of Rs 50 crore. Allianz Capital has received the mandate for the issue; it will be the sole book runner of the issue. The instrument provides a put and a call option after three years and the redemption of 50 per cent will be at par at the fourth and the fifth year.

The issue will be closed within 15 days of its opening but, as a result of some pre-marketing efforts, the instrument has already received an informal commitment upto Rs 50 crore, said sources.

The interest rate at which HAL raises funds will set a benchmark for other companies planning to tap the market in the near future. After the bank rate cut by the RBI, interest rates have been falling across the board. The fall in rates was seen in the short term market.

However, sources say the rate offered by HAL should not be considered a five-year rate. This is because the company has a put and call option at the end of three years, which essentially means that the interest rate is for three-year money.