Indian Petrochemicals' (IPCL) Rs 450-crore debt issue has garnered bids worth around Rs 100 crore at an interest rate of 14.15 per cent which debunks the view that interest rates are moving upwards. The issue, rated triple A by Care, has eight more days to go before it closes on 24 June.
The debt issue of Rs 300 crore with a greenshoe option of Rs 150 crore adopted the book building route to find the competitive rate. The interest band is fixed at 14-14.25 per cent. It has a seven year tenure and five year put and call option. Speaking to Business Standard, Shekhar Sathe, Kotak Mahindra, one of the lead managers to the issue, said that the bidding has "surpassed the Rs 100-crore mark, and more bids are coming in."
Sources said most of the bids were in the range of 14.15 per cent. However, Sathe refused to comment on the rate. The bidding rates are crucial in this issue as IPCL had opted for book building route to fix the interest rates. The cut-off coupon rate will be fixed only after considering the level of commitments.
Merchant bankers said that despite the fine pricing, the issue had met with a good response. They attributed the response to the fact that being a public sector firm, IPCL can attract investments from provident funds, trusts, etc.
Most of the merchant bankers dismissed low level of subscription as routine. They said it is very common in private placements. Investors are notorious for waiting till the last moment before the issue closing to subscribe. "Most of the potential investors are holding back their bids, and they will bid after 20 June," merchant bankers said.
On the other hand, investment experts expressed surprise that some banks are subscribing to a long term paper at their prime lending rates.
"They never lend at their prime rates. Even for the working capital they charge a minimum one basis point above their prime," said one.
However, an investment banker justified the move saying that the banks are just utilising their short term funds. "The low cost of funds combined with better yields are the main reason for their enthusiasm," he said. "However, most banks would off load the papers in the secondary market within the next six months. They would get out with no-profit-no-loss basis," he added.
