Icici Ups Interest On Bonds 100bp

Industrial Credit and Investment Corporation of India Ltd (ICICI) has hiked the interest rate on its ongoing on-tap bond issue by about 100 basis points to 13.75 per cent for five years and 14 per cent for seven years.

The rate on the five-year tenure is slightly higher than that offered by Industrial Develop- ment Bank of India in its ongoing retail issue. While ICICI is offering 13.75 per cent to institutional investors, IDBI is offering an annualised yield of 13.36 per cent on its five-year growing income bond in the retail segment.

The increase in the ICICI bond issue coupon rates comes three weeks after the Reserve Bank of India announced a 2 percentage points increase in the bank rate to 11 per cent and a 50 basis points increase in the cash reserve ratio to 10.5 per cent on January 16.

 

Following the RBIs decision, ICICI hiked its lending rates 100-200 basis points. The financial institution raised both its short-term prime rate (STPR) and its medium term prime rate (MTPR) 200 basis points each to 14 per cent and 14.25 per cent, respectively, and its long term prime rate 100 basis points to 14.50 per cent.

The upward revision in ICICIs long-term lending rate was lower because of the belief that the increase in interest rates is temporary in nature. While announcing the hike in its lending rates, the financial institution had indicated that its borrowing costs were expected to rise.

Interest rates have hardened in the private placement market, with the cost of one-year funds moving up by as much as 200 basis points to around 13 per cent. Some issuers have been affected by the increase in rates. For example, Indian Oil Corporation initially extended the deadline for its Rs 300 crore bond issue to February 6 and then decided to defer it. IOC had planned to raise funds through book building and indicated an interest rate band of 11.75 per cent to 12 per cent.

According to merchant bankers, IOCs book-building rate was not in line with market expectations. The higher deposits rates offered by all banks after the RBI measure made the IOC paper even more unattractive to investors. Besides, the tight liquidity prompted cash-rich entities to invest in T-bills which offered 15-25 per cent,