Idbi To Call Back Flexibond & #39;92 Too

Declining interest rates have prompted the Industrial Development Bank of India (IDBI) to exercise the call option on its deep discount Flexibond 1992 issue.

The issue price of the bond was Rs 2,700 and the institution will have to pay back Rs 12,000 per bond on exercising the call. The redemption amount will be payable on March 31, 2002.

The bond was originally of 25-year tenure, with a put-and-call option after every five years. As per the offer document, the bond would give a return of Rs 1,00,000 on maturity as on March 31, 2017.

Analysts view the announcement of IDBI as a logical measure at a time when interest rates have reached the lowest level ever. Analysts said the term-lending institution could substitute its high cost borrowings (where the interest rate exceeds 16 per cent) by a fresh loan at an interest rate lower by at least five percentage points.

 

Meanwhile, IDBI recently reduced its lending rates, whereby the minimum term lending rate was cut by 50 basis points to 12.5 per cent and the minimum short-term lending rate was reduced by 50 basis points to 12 per cent. On the back of this, it became necessary for the IDBI to retire its high-cost loans like the Flexibond '96 issue.

The term-lending institution called back its IDBI Deep Discount Bonds and IDBI Retirement Bonds of Flexibonds '96 Issue on August 1, 2000.

The institution's lending activity was hit by the recent downgrade of its outstanding bond issue and certificate of deposit programme from 'AAA' to 'AA+' by the Credit Rating and Information Services Limited. The rating agency however, 'reaffirmed' its ratings assigned to the fixed deposit programme of IDBI at FAAA, and assigned the highest rating "P1+" to IDBI's term money bonds.