State government companies lure PFs with high-return bond issues
Companies managed by state governments are flocking to the primary bond market offering attractive interest rates as they try to mop-up excess liquidity among exempted provident funds, which recently received around Rs 3,000 crore as interest income.
At least seven state-level undertakings (SLUs) are in the fray to sell debt to PF bodies. Four of them have already launched their offerings.
For these exempted PF bodies - non-government provident funds which manage their corpus at individual company levels, instead of transferring the money to the government's Employees' Provident Fund Organsiation - SLU instruments provide high returns with a level of security as they come with state government guarantees. Still, they face the risk from any major deterioration in state finances, be it for natural calamity or something else, which may result in dilution of the guarantee, bond dealers said.
 There are an estimated 2,700 exempted provident funds. They receive annual interest payments on the first day of every calendar year from the Special Deposit Scheme, a programme launched by the central government in 1975 to provide better returns to all provident funds as well as superannuation, gratuity and other such funds.
Haryana Vidyut Prasaran Nigam, Tamil Nadu Generation and Distribution Corporation, Rajasthan Rajya Vidyut Prasaran Nigam and Krishna Bhagya Jala Nigam have hit the market over the past two-three weeks to raise a total of about Rs 2,900 crore.
Three more issues - Tamil Nadu Industrial Investment Corporation, Rajasthan State Road Transport Corporation and West Bengal Finance Corporation - are expected to come soon, according to merchant banking sources. This flood comes after a drought of new issues between July and December. In a financial year, SLUs raise about Rs 4,000 crore to Rs 4,500 crore.
The coupon of the latest SLU issuances ranges between 9.83% and 10.50% with semi-annual or annual interest payment for a 10-12 year tenure, at least a full percentage point more than the 10-year benchmark government bond which offers 8.83%.
"Defaults are very unlikely as states have to keep their credibility up," said Harihar Krishnamoorthy, head -treasurer at FirstRand Bank. "State governments regularly borrow from the market via state development loans. If any SLU defaults, it will impact investor sentiment."
Indian states have also been gradually improving their fiscal strength, which is reflective in state development bond rates, he said. Yields have fallen by four-five basis points in the past few months, some of the dealers said.
Most of the SLUs are not profit-making. State government guarantees still help them get ratings such as A+, A- and AA-, though some market participants say that big rating companies on many occasions were not invited to rate such issuances.
"This is an irrevocable state guarantee," said Anish Agarwal, an associate at Darashaw & Co, a Mumbai-based brokerage firm specialising in debt securities. "No instrument can be taken as absolutely risk-free. A state distributes its central government grants through SLUs. If they fail, there will be rippling effect."
Source » Economic Times
Thanking you
Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
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At least seven state-level undertakings (SLUs) are in the fray to sell debt to PF bodies. Four of them have already launched their offerings.
For these exempted PF bodies - non-government provident funds which manage their corpus at individual company levels, instead of transferring the money to the government's Employees' Provident Fund Organsiation - SLU instruments provide high returns with a level of security as they come with state government guarantees. Still, they face the risk from any major deterioration in state finances, be it for natural calamity or something else, which may result in dilution of the guarantee, bond dealers said.
 There are an estimated 2,700 exempted provident funds. They receive annual interest payments on the first day of every calendar year from the Special Deposit Scheme, a programme launched by the central government in 1975 to provide better returns to all provident funds as well as superannuation, gratuity and other such funds.
Haryana Vidyut Prasaran Nigam, Tamil Nadu Generation and Distribution Corporation, Rajasthan Rajya Vidyut Prasaran Nigam and Krishna Bhagya Jala Nigam have hit the market over the past two-three weeks to raise a total of about Rs 2,900 crore.
Three more issues - Tamil Nadu Industrial Investment Corporation, Rajasthan State Road Transport Corporation and West Bengal Finance Corporation - are expected to come soon, according to merchant banking sources. This flood comes after a drought of new issues between July and December. In a financial year, SLUs raise about Rs 4,000 crore to Rs 4,500 crore.
The coupon of the latest SLU issuances ranges between 9.83% and 10.50% with semi-annual or annual interest payment for a 10-12 year tenure, at least a full percentage point more than the 10-year benchmark government bond which offers 8.83%.
"Defaults are very unlikely as states have to keep their credibility up," said Harihar Krishnamoorthy, head -treasurer at FirstRand Bank. "State governments regularly borrow from the market via state development loans. If any SLU defaults, it will impact investor sentiment."
Indian states have also been gradually improving their fiscal strength, which is reflective in state development bond rates, he said. Yields have fallen by four-five basis points in the past few months, some of the dealers said.
Most of the SLUs are not profit-making. State government guarantees still help them get ratings such as A+, A- and AA-, though some market participants say that big rating companies on many occasions were not invited to rate such issuances.
"This is an irrevocable state guarantee," said Anish Agarwal, an associate at Darashaw & Co, a Mumbai-based brokerage firm specialising in debt securities. "No instrument can be taken as absolutely risk-free. A state distributes its central government grants through SLUs. If they fail, there will be rippling effect."
Source » Economic Times
Thanking you
Regards,
Rajesh Kumar Kathpalia ¤ SMC Global
17,Netaji Subhash Marg,Daryaganj,
New Delhi-110002 Mobile No 9891645052
Email Id: rajesh.ipo@smcindiaonline.com
--
You received this message because you are subscribed to the Google Groups "Product Updates for AMC" group.
To unsubscribe from this group and stop receiving emails from it, send an email to Productupdatesforamc+unsubscribe@googlegroups.com.
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