The National Bank of Agriculture and Rural Development (Nabard) and Power Finance Corporation have scrapped plans to issue bonds after investors demanded higher coupon rate, expecting a rate cut by the Reserve Bank of India (RBI) in December.
Investors wanted to lock in higher rates ahead of a possible rate cut, money market experts said.
“The rates offered on the bonds were close to the secondary market levels of these bonds of similar maturity, however, companies rejected the bids citing high coupon,” a dealer close to the development said.
Nabard was planning to raise Rs 7,000 crore, with a greenshoe option of Rs 5,000 crore. The bonds were to mature after three years and three months.
It received 12 bids at coupon rate of 6.74 percent with cumulative value of Rs 2,480 crore, 13 bids at 6.75 percent with value of Rs 3,805 crore, 15 bids at 6.76 percent with value of Rs 5,330 crore, 14 bids at 6.77 percent with value of Rs 6,880 crore, and 12 bids at 6.78 percent with value of Rs 9,430 crore, market sources said.
“Market was expecting NABARD to get coupon rate of 6.75-6.80 percent on their bonds, but coupon asked by investors on the entire amount was higher than company’s expectation,” said another dealer.
State-run PFC bond issue also saw a higher coupon, resulting in withdrawal of the issue.
In another issue, PFC raised Rs 3,000 crore through 10-year at a coupon rate of 7.08 percent.
The expectation of a rate cut gained ground as inflation remains historical low.
On November 21, a Moneycontrol poll of 18 economists, treasury heads and fund managers said that the RBI’s MPC is likely to cut repo rate by 25 basis points (bps) in the upcoming monetary policy due to the comfort provided by the lowest ever Consumer Price Index (CPI) inflation in the last two months.
If the RBI goes for a rate cut in December, it will be the first after maintaining status quo in the last two policies.
The RBI has so far reduced repo rate by 100 bps from 6.5 percent to 5.5 percent between February and June. It left the rate unchanged in August and October.
The MPC meets from December 3 to 5 for another round of rate-setting deliberations.
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