Idbi Bond Prices Plummet On Crisil Rating Impact

Industrial Development Bank of India's (IDBI) debt paper prices dipped by more than Re 1 following the downgrading of its bonds by the Credit Rating and Information Services of India Ltd (Crisil).

The IDBI paper was downgraded by a notch from AAA to AA+. Dealers said though there was hardly any secondary market trading for the IDBI bonds today, yields went up sharply by 25 basis points.

The current spread between the yields of the IDBI bonds and the government paper of similar maturity is in the range of 190-200 basis points. The downgrading is likely to widen the spread to 250 basis points, said senior analysts.

 

Mutual funds, which have large positions in IDBI's bond holding, have started off-loading their positions in the market.

A dealer said, "after the US-64 crisis, mutual funds do not want to take any chances and hence the downgrading of the IDBI bonds attracts selling pressures from these entities."

The impact of downgrading, however, is not likely to spread to the debt papers of other financial institutions.

Bond market dealers said the players were reluctant to take fresh positions on these bonds as yesterday's downgrading may be followed by more rating revisions. A bond dealer with an investment bank said: "One notch down in the rating implies the valuation of the bond will go down by 25 basis points. This has taken away the attraction of these bonds and led to the fall in yields."

Crisil said the downgrading was done due to the deterioration in the asset quality and delay in implementation of the capital restructuring plan of the financial institution.

Trading in the corporate bond has been dull since the beginning of the week as the government security yield started moving up following the open market auction done by the Reserve Bank of India (RBI). There has not been any new issue of corporate debt paper since that time as well.