L & T Enters Market With Two Cps

Engineering major Larsen & Toubro has entered the market with a 364-day and a 270-day commercial paper (CP). This will develop a long-term market for the CPs, which generally have a maturity of 90 days.

The company is in the market with CPs of different maturities. This being the first issue of its kind, L&T has indicated a yield of 11.75 per cent on a maturity of the 364-day CP. This will be the first 364-day CP issue by a private sector company .

L&T is also in the process of issuing 270-day commercial paper. The rates on this maturity paper is 11.25 per cent. The paper will help the formation of a yield curve for top rated corporates.

 

At present, the cut-off on a 364-day Government of India (GoI) treasury bill gives a yield of 8.98 per cent. With this issue the risk premium for the 364-day paper, for a top rated company, is now placed at 275 basis points. There is at present no benchmark for the 270-day issues as the 270-day GoI treasury bills were withdrawn. This is also the case with the 180-day CPs. The issue received top rating from the credit rating agency.

The company will be doing a first of sorts and setting a benchmark for other issues of this maturity once the issue sails through. The initial reaction of the market has been favourable. Public sector banks have evinced interest since their cost of funds are on the lower side.

However the newer banks are unsure. The rates which they have offered are almost the same at which we would like to raise funds ourselves. This makes the issue unattractive for us, said a banker .

After corporates created a benchmark for the long term paper, they are now entering the market with the short-term paper. Many corporates like Reliance and the Industrial Development Bank of India, had tapped the market with five-year paper.

RIL had offered 14.5 per cent and the IDBIs issue, which is at present open, offers 13.5 per cent. With L&T tapping the market the short-term market through CPs is getting active.