Kerala borrows Rs500 cr through 4-year bonds at 5.3 pc

Decides against accepting bids came for its Rs500 cr 7-year bonds

MUMBAI: Kerala that aimed to raise Rs1000 crore through two bonds – 4-year and 7-year bonds, on Tuesday (July 21) decided to confine to Rs500 crore through the auction of 4-year state development loans (SDLs) or bonds – at a price (coupon) of 5.3 per cent.

At the same time, the state rejected the bids came at the auction for its 7-year bonds to raise another Rs500 crore, presumably due to the unacceptable coupon rate quoted by the investors.

It may be relevant to mention here that Karnataka,  on the other hand, accepted bids for its 7-year SDLs at 6.12 per cent to raise Rs1000 crore, whereas the coupon struck for its Rs1000 crore 8-year bonds was counter-intuitively 3 basis points less at 6.09 per cent.

According to V Viswanathan, a former senior banker, normally this does not happen unless there is a feeling that the interest rate scenario is likely to change after 7 years.

“But this is not the case as 10-year securities are auctioned at higher rates than 7- year securities. So this has to do more with the last bid, which determined the cut-off rate,” he explained..

Importantly, the interest rates have fallen substantially across the tenures since the first auction of this financial year on April 7 with the coupon on 10-year benchmark SDLs plummeting by about 150 basis points (bps) from the range of 7.75-8 per cent to as low as 6.33 per cent, at which Tamil Nadu borrowed Rs1250 crore on Tuesday’s (July 21) auction.

During this period, the repo has undergone a rate cut of just 40 basis points. The banks are flush with funds and there is a general feeling in the market that the repo will be cut further, and hence the investors, predominantly banks, are rushing to park their funds in secured instruments such as State and Central securities to ensure the current rates for their investments.


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