Foreign investors' India debt limit auction oversubscribed

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Foreign institutional investors (FIIs) put in bids for about USD 4.3 billion of Indian government securities and corporate bonds, or nearly double the stock on offer, indicating robust appetite for Indian debt, five market sources said on Wednesday.

Foreign investors bid for around Rs 9,700 crore (USD 2.1 billion) of corporate bonds against Rs 2,700 crore on sale, as the paper did not have any sector or tenor restrictions.

They bid Rs 9,800 crore of government bonds, compared with around Rs 7,500 crore on offer for maturities of more than five years.

The auction was held on Tuesday by the Securities Exchange Board of India (SEBI) to allocate unutilized FII limits for government bonds and corporate bonds.

"Since the limits that were auctioned under the corporate bonds did not have any tenure restriction, they were lapped up by FIIs, but we can't be so optimistic when SEBI auctions the new limits which have restrictions," said a foreign bank dealer who had bid in the auction.

In the 2011/12 annual budget on February 28, Finance Minister Pranab Mukherjee had raised the FII limit in bonds with residual maturity of more than five years issued by companies in the infrastructure sector by an additional USD 20 billion taking the limit to USD 25 billion.

This will raise the total limit available to FIIs for investment in corporate bonds to USD 40 billion.

The current FII limit in government debt stands at USD 10 billion of which USD 5 billion must be invested in bonds of more than five years maturity.

The commissions foreign investors were willing to pay for corporate bonds were sharply higher than for government bonds, indicating the strong demand.

These ranged from 1.05% to 1.4% on corporate bonds, compared with 0.04% to 0.055% on government bonds, the sources said.