Market borrowing: Kerala strikes ‘best pricing’ at SDL auction

 Raises Rs1500 crore; 10-year bond sold at 6.55 pc

MUMBAI: Kerala claimed the lowest coupon rate among all states that participated in the market borrowing on Tuesday (June 2)  that saw 10 states raise Rs19,000 crore by selling state development loans (SDLs) with maturities ranging from 2 years to 11 years to investors – primarily banks and insurance companies.

Kerala borrowed Rs1000 crore through 10-year SDLs and Rs500 crore by selling 4-year paper. With this, the total market borrowing by Kerala during the current financial year has totalled Rs10,430 crore against the earlier full-year target of a little more than Rs27,000 crore… which could go up substantially due to the additional two per cent allowed by the Central Government recently as part of COVID 19 package..

While the coupon rate struck by Kerala for its 10-year bond was 6.55 per cent against 6.58 per cent by Gujarat, Karnataka and Rajasthan, 6.62 per cent by J&K and 6.70 per cent by Punjab, the southern-most state could raise Rs500 crore through its four-year bond at coupon as low as 5.44 per cent.

The interest rates have fallen generally in the market due to the excess liquidity. The new series of 10-year Government of India (GOI) bonds are trading at 5.79 per cent.

Talking to, Vikram Dalal, managing director, Synergee Capital Services, said market had discounted rating downgrade (one notch) by Moody’s. “Excess liquidity in the system is driving the bond yields,” he said.

Rajasthan, Tamil Nadu and Andhra Pradesh also sold 4-year SDLs at 5.47 per cent, 5.46 per cent and 5.45 per cent respectively. Though the marginal gains achieved by Kerala in terms of coupon (interest offered on bonds) may not call for something to crow about, it adds a lot to the perception the state carries among the investors.

There are views expressed in the market that the unique success achieved by the state in containing the fast-spreading COVID 19 has certainly helped Kerala earn a good market perception about the state, which has also displayed high level of transparency in disseminating statistics on the COVID cases on the regular basis.

During the past close-to two months, the coupon on 10-year SDL has dropped 136 basis points (1.36 percentage points) for Kerala. More importantly, the state loan’s premium to Indian government’s bonds (G-Secs) coupon has plummeted from about 200 basis points to just 60 basis points during this period.

But the fact that the state is struggling to meet its committed expenses, the bulk of which is the salary & pension and debt servicing, has indeed spread a pall of nervousness within the corridors of finance department.




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