Kerala pays higher price to borrow this time

Pays 6.73pc for 8-year debt; raises Rs1000 cr through 2 SDLs

MUMBAI: If it was Kerala that commanded the lowest coupon rate at the auction for market borrowing last week, the auction on Tuesday (June 9) saw the investors demand from Kerala higher rates than most states.

The euphoria over the perception that risk attached to Kerala government debt is one of the lowest was thus short-lived. While Kerala could sell its Rs1000 crore 10-year state development loans (SDLs) at 6.55 per cent on June 2, one week later, on June 9, the coupon inched up by 18 basis points despite the tenure being 8 years, shorter by two years.

The auction for market borrowing on Tuesday (June 9) saw the investors demanding the highest price (coupon) for the SDLs issued by Kerala.

(In theory there need not exist any variance in coupon among the states for similar bonds as all their borrowings enjoy implied sovereign guarantee)

Kerala borrowed Rs1000 crore this time taking the total tally this fiscal to Rs11,430 crore. During this auction, the state was required to jack up the coupon to 6.73 per cent to attract offers for Rs700 crore SDLs with tenure of 8 years.

Kerala also raised another Rs300 crore through 5-year SDL at a coupon of 5.77 per cent taking the total to Rs1000 crore. A comparison of coupons offered by different states against similarly tenured bonds proves that the rate offered by Kerala is higher than what many other states offered to sell their similar SDLs.

For example, while West Bengal sold 10-year SDLs at 6.65 per cent, which is 8 basis points lower than that Kerala had to offer for Rs1000 crore, Maharashtra paid only 6.6 per cent to raise Rs2000 crore through 10-year paper.

Telengana is the only state which had a poor show at the auction where the state couldn’t drum up enough interest from investors even at the highest rate of 6.99 per cent for 8-year SDLs. Though the state targeted an amount of Rs2500 crore, it had to be content with little less – Rs2461.20 crore despite the higher coupon.

In the case of Tamil Nadu, the state though targeted Rs2000 crore through two SDL issues with tenures of 10 year and 30 year, it concluded the deal by raising Rs250 additional on both papers. While the 10-year bond was issued at 6.69 per cent, the 30-year paper was sold at a tad higher at 6.74 per cent.

In all, 11 states raised Rs16,521.20 crore, but Gujarat has not accepted any amount in the auction though it offered to raise Rs1000 crore through 10-year bond. The best pricing at the benchmark 10-year bonds was bagged by Madhya Pradesh and Rajasthan at 6.57 per cent when they raised Rs500 crore and Rs1500 crore respectively.



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