Indian Oil withdraws 5-year bond issuance on higher-than-expected yield

Indian Oil Corporation withdraws Rs 3,000 crore bond offer as yield crosses expected levels, despite strong demand and competitive pricing post-policy announcement

Indian Oil Corporation Limited (IOCL) withdrew its five-year bond issuance on Wednesday due to higher-than-expected yield, said market participants. The company was expecting lower yield levels following the initial rally in the short-term bonds when the rate cuts were announced, they said.

 

“They were getting good rates but they still chose to withdraw maybe because the rates were not up to their expectations,” said a dealer at a state-owned bank. “There can’t be any other reason to withdraw,” he added.

 

According to market participants, IOCL had the option to retain ₹3,000 crore at a yield of 6.51 per cent from the total bid book of ₹9,800 crore. The oil-marketing major had managed to attract competitive pricing — about 50 basis points (bps) above the corresponding government security on an annualised basis. 

 

“IOCL was likely expecting finer levels post-policy, especially after the initial rally on the policy day. However, yields reversed direction shortly thereafter. Despite this, they managed to secure attractive pricing — roughly a 50 bps spread over the corresponding g-sec on an annualised basis,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.

 

Meanwhile, REC raised ₹3,000 crore through a 21-month issuance at a cutoff yield of 6.37 per cent, and ₹1,922.50 crore via a four-year issuance at 6.70 per cent.

 

The short end — particularly up to the 5-year segment — had performed best across both SLR and non-SLR (corporate bond) categories following the monetary policy review outcome on Friday, mainly due to lower funding costs. These instruments are bought for interest income rather than capital gains.

 

The yield on 3-year and 5-year government bonds fell by 5 bps each on Friday, however, they gave up gains on Monday as traders sold bonds at a profit.

 

Market participants said that shorter tenure bonds are expected to outperform longer tenure bonds in the near term.