Cos, FIs prefer pvt placement route for funds

Last month, RIL mopped up Rs 100 crore through a private placement of five-year secured redeemable non-convertible debentures pegged at 50 basis points above the government bond of similar maturity, which works out to Rs 10.51 per cent. HDFC raised Rs 100 crore at a coupon rate of 10.78 per cent, while IOC raised Rs 500 crore though seven-year paper, with a put andcall option at the end of five years. The funds were raised by the petro gaint at 10.85 per cent.

SBI is slated to enter the private placement market this week with a subordinated debt issue of Rs 1,000 crore – the largest tier-II debt issue by any bank in the current fiscal. The five-year instrument is likely to carry a coupon of around 11 per cent. The secondary market yield of a comparable maturity government paper is at present 10.30 per cent.

The SBI paper – rated "AAA" by Crisil and managed by SBI Capital Markets – will be lapped up by financial institutions and insurance companies. The bank plans to raise funds from the debt market to beef up its Tier-II capital. "The bank anticipates a growth in loans assets in the next financial year. Raising Tier-II funds at this juncture will allow the bank to maintain its capital adequacy ratio (CAR) at the current levels," SBI sources said. The bank’s present CAR is pegged at 12.51 per cent. Of this, Tier-I capital is 9.36 per cent and Tier-II capital 3.15 per cent.

SBI had floated a 10-year Rs 1000 crore subordinated debt issue in 1995 around the time the bank had made its maiden equity issue. "At around 11 per cent, the SBI paper is finely priced. Had the bank opted for the book-building route for pricing the bond, the coupon would have been on the higher side, given the likely tightness in the system this week," a debt analyst said.

The timing of the bond issue coincides with expectations of a rise in secondary market yields following tighter liquidity conditions from outflows of Rs 7,000 crore towards advance tax. Yields on five-year "AAA" rated paper are currently being dealt at 11.10 per cent, about 20 basis points lower than the levels prevailing the previous week.

SIDBI is planning to raise Rs 300 crore through domestic private placement in the current fiscal as part of its efforts to mop up additional funds to meet its lending requirements. "We are planning to raise Rs 300 crore from the domestic market through private placements before March-end which is in addition to Rs 300 crore raised by SIDBI in January," managing director of SIDBI Sailendra Narain said.

Narain said the bank was also awaiting clearance for a Rs 1300 crore loan from the multilateral lending agency Overseas Economic Cooperation Fund (OECF) of Japan, which was scheduled to be released this year. "This would be the seventh line of credit for SIDBI from OECF in case the loan is cleared," he added.

SIDBI, which provides credit to various small and medium industries, is also planning to launch its two venture capital funds this year, he said, adding one of the venture capital funds would target the non-resident Indian IT entrepreneurs in Silicon Valley.

he bank would also launch a 50 million dollar venure capital fund by May to finance projects undertaken by Indian IT entrepreneurs/companies in the Silicon valley, he said. The fund, to be registered in US, would help finance theIndian IT entrepreneurs who have viable projects and SIDBI was also not averse to the idea of entering into a partnership with international venture capitalists for the fund, Narain said.