Indian Rayon, Indian Petro Postpone Debt Floatations

Several leading corporates are planning to postpone their plans to tap the debt market till a new benchmark interest rate emerges.

The current benchmark for an AAA five-year paper is 14.5 per cent the rate at which Reliance raised Rs 140 crore. However, corporates trying to raise funds at these rates are facing resistance from banks, which are the main investors.

At least two major players, Indian Rayon and Indian Petrochemicals Corp Ltd (IPCL) have decided not to tap the market immediately, said merchant bankers. Indian Rayon plans to wait for some more time before entering the market despite having hiked the coupon rate from 14.25 per cent to 14.5 per cent.

IPCL was earlier planning a price band of 13.75 per cent and 14.25 per cent. Given the interest rate scenario, it has stuck to 14.25 per cent. However, a merchant banker revealed that IPCL is now thinking of restructuring its instrument.

The players are apprehensive that their issues will meet the same fate as the IDBIs. There is strong resistance to the existing rates from some banks, said a source. After finely pricing its issue at 13.5 per cent, the development bank could mop up only Rs 300 crore against an issue size of Rs 1,000 crore.

Other bankers said they are unwilling to bet on long term money at 14.5 per cent as short term interest rates are likely to firm up shortly. In fact, a rate of 14.5 per cent gives most banks very little margin. For instance, banks have to pay around 12 per cent on their long term deposits. If one adds the cash reserve ratio burden, the liability cost goes up to more than 13 per cent, leaving a very thin spread.