Idbi Omni Bond Hits Market With 12% Tag

Industrial Development Bank of India (IDBI) has entered the debt market with the ninth wholesale Omni Bond issue at an interest rate of 12 per cent for five years which is a 50 basis point drop over its last issue.

Interestingly, IDBI has decided not to appoint a set of merchant bankers for this issue unlike the last few Omni Bond series. The FI has kept the offer open for a few select merchant bankers, and it will accept the collection from which ever merchant banker gets a procurement higher than an internally decided criteria.

The internally fixed minimum subscription that a merchant banker should garner is reportedly Rs 50 crore. If a merchant banker gets this minimum amount, he will automatically be an arranger of the issue and will get his fees accordingly.

The fall in coupon rate is a consequence of the general decline in interest rates after the steps taken in the monetary policy for the second half of 1997. However, the coupon for the paper maturing in three years has been kept unchanged at 10.75 per cent indicating that interest rates for the short term period is unlikely to undergo changes.

IDBI, which opened the Omni Bond Series IX for subscription yesterday, plans to raise nearly Rs 750 crore through private placements.

Earlier, during the first week of September, the FI, through its Omni Bonds Series VIII, had raised Rs 750 crore through the book building route by offering interest of 10.75 per cent for three years, 12.50 for five years and 13 per cent for seven years.

For the new series, IDBI has decided to offer four instruments of which three are regular returns bonds that are payable semi-annually while one will be a step up bond payable annually.

It is offering Omni Regular Return I Bond for three years at the coupon of 10.75 per cent where the semi annual yield amounts to 11.04 per cent, Omni Bond Regular Return II for five years at 12 per cent where semi-annual yield amounts to 12.36 per cent and Omni Bond Regular Return III for seven years for 12.50 per cent where the semi-annual yield amounts to 12.63 per cent.

The Omni step up interest rate bond has a three year maturity, and offers a put option at the end of the first and second year. It offers 9.57 per cent for the first year, 10.25 per cent for the second year and 10.75 per cent for the third year, and the annualised yield amounts to 10.22 per cent.

Meanwhile, IDBI is also raising money at 10.50 per cent for three years, 11.75 per cent for five years and 12 per cent for seven years through its Omni Bond on-tap issue. In the on-tap issue, interest rates are 25 basis points lower than the private placement issue. Merchant bankers said that many issuers are awaiting for entities like the triple A rated IDBI to set a benchmark for them so that they can decide on ideal interest rates for their issue.