August 4, 2017 / 7:56 AM / a year ago

Issuance revival after RBI rate cut

* Bonds: State-owned companies start issuing rupee notes on 25bp reduction to 6% in policy rates

SINGAPORE, Aug 4 (IFR) - State-owned companies have started issuing rupee bonds following the Reserve Bank of India 25bp cut in its policy rates to 6% last Wednesday.

With the cut, the RBI became the first central bank in Asia o lower rates after consumer price inflation fell to a series low in June.

Following the cut, the yield on 10-year AAA rated corporate bonds softened 3bp to 7.27% and that on five-year paper fell 5bp-7bp to 7.07%, spurring companies waiting on the sidelines to issue notes.

Power Grid Corp received the lowest bid of 7.15% to issue Rs10bn (US$156m) of 10-year bonds, plus an undisclosed greenshoe amount. PGC is yet to announce the final price and size of the issue.

Last Thursday, Power Finance Corp sold Rs48.95bn of two-tranche bonds - Rs33.95bn of five-year paper at 7.1%, and Rs15bn of 10-year notes at 7.3%.

With yields expected to remain soft, public-sector banks are also preparing to sell Basel III-compliant Additional Tier 1 bonds.

Bank of Baroda, Punjab National Bank and Canara Bank are seeking price levels to print AT1 bonds.

Bank of Baroda aims to raise Rs20bn, but, so far, it has issued bonds of only Rs5bn at 8.6%. So, it is heading to the market again to raise the remaining amount at better levels, according to one DCM banker.

PNB recently sold Rs15bn of AT1 bonds at 8.98%.

Both issuers’ bonds have call options after five years.

Meanwhile, IDBI Bank has said in an exchange filing that it will pay coupon on its AT1 bonds on August 14. The approval to pay the coupon on its Rs10bn 11.09% perpetual notes “signals regulatory forbearance”, MUFG wrote in an August 3 note.

IDBI’s common equity Tier 1 ratio, including the capital conservation buffer, fell to 5.64%, below the RBI minimum of 6.75% as of end-March 2017 and it also reported a higher-than-expected loss of Rs51bn. However, IDBI has said it will pay the coupon.

“It would really be a big dampener if a PSB defaults on interest payment on AT1 bonds,” said one banker.

PSBs need additional capital of Rs1.9trn by March 2019, says S&P Global Ratings.

“It makes sense for all state-owned banks needing T1 capital to borrow now because spreads are decent and there is appetite in the market,” said the same banker. (Reporting by Krishna Merchant; Editing by Dharsan Singh) )

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