The Subscription Wars

The bond markets have begun seeing a rash of issues. Initially it was restricted to public offerings but now even the private placements market is beginning to get crowded. A lot of these issuers are normally those who would have normally accessed the equity market at a premium. But with the equity markets still down issuers are choosing the debt route and building in early exit options. The exceptions of course have been the financial institutions.

The financial institutions during the last six months have mopped up atleast Rs 4,000 crore from the retail investors, by tapping various categories of savers, using a combination of deep discount and regular interest bonds. In addition to the financial institutions even top grade corporates like Tisco and L&T have begun tapping the public issue markets with others like Arvind Mills to follow. And the yields offered have been phenomenal, upwards of 18 per cent. IFCI for instance had offered an effective yield upwards of 19 per cent to ensure the oversubscription on its 17.5 per cent coupon debt offering made last month. SCICI bonds using an identical structure, was actually undersubscribed in such a situation since the effective yields were much lower, including the front end discounts at just 18 per cent. The Tisco and L&T issues are offering effective yields of 18.5 per cent

 

As a result of this cut throat competition in the public issues market, smaller issuers, mostly finance companies and state-sponsored firms have begun to privately place debt. But even in the private placements markets, the competition is no less. This is so because public sector issuers have also begun targeting institutional subscribers like provident funds. PFs, are allowed to invest up 25 per cent of their investible funds in public sector or DFI bonds. The National Hydro-Electric Corporationbr>