Idbi To Unwrap Hybrid Bond, Snips Rate

The Industrial Development Bank of India (IDBI) is launching a novel hybrid debt instrument, the IDBI Fixed Option Floating Option Bond.

It has features of both fixed interest and floating interest instruments and offers an exit option to investors.

For the first three years, the institution is offering 7.25 per cent on the five-year paper. After this, IDBI has an option to step up the fixed rate to 7.50 per cent or switch over to a floating rate pattern for the remaining two years.

If IDBI exercises the floating rate interest option, the rate then would be pegged at 1.25 per cent over the bank rate as on March 10, 2006, for the fourth year and 1.25 per cent over the bank rate as on March 10, 2007, for the fifth year. The bank rate is at 6.25 per cent now.

 

Investors will have a put option to exit and redeem the bonds on April 25, 2006, in case IDBI decides to switch over to floating rate basis in the last two years.

The financial institution has reduced interest rates on this latest Flexibonds 18 issue by 25 to 40 basis points. The issue is slated to hit the market on March 7. The institution has already raised Rs 1,870 crore through its Flexibonds series this year.

IDBI had raised Rs 515 crore through its last issue of Flexibonds against the issue size of Rs 300 crore with a greenshoe option of the same amount. The new issue