ICICI enters bond market
Aug 25, 2000

Author: PersonalFN Content & Research Team

ICICI is currently not in a mood to lose out to competitors. In order to tap the huge retail investor segment and make the forthcoming bond issue an attractive investment option, the institution has reduced the tenure of its safety bond issue, expected to hit the market on August 28, 2000.

ICICI was in the market with a bond issue early this month. However, the institution was not successful in mopping up Rs 250 crore owing to lower rates offered on the instruments.

The institution is expected to enter the market with unsecured redeemable bonds in the nature of debentures aggregating to Rs 250 crore with a green shoe option to retain oversubscription of up to Rs 250 crore.

Both the top rated credit agencies in the country--Icra and Care have assigned 'AAA' ratings to the bond issue, indicating `highest safety'. The issue, which is expected to opens for subscription on August 28 will close on September 12, 2000.

According to a release issued by the institution recently, under the umbrella prospectus approved by the Securities and Exchange Board of India for the year 2000-01, ICICI is allowed to raise up to Rs 4,000 crore by way of bonds with a right to retain over-subscription of up to the same amount, in tranches over a period of one year.

The current issue of ICICI safety bond offers various options under three types of bonds - tax saving bond, regular income bond and money multiplier bond (in the nature of deep discount bond). Non-resident Indians/overseas corporate bodies were also eligible to invest in the three types of bonds on both repatriable and non-repatriable basis.

The yield offered by the institution on the four-year regular income bond is marginally higher than the four-year government paper quoted in the secondary market. The tax saving bonds under the issue has regular income and deep discount options, under section 88 and section 54EA. The maturity of these bonds range from three years to three years four months. The yield on bonds range from 10.5% to 10.6%.

ICICI has reintroduced the deep discount bond (money multiplier bond) under which a Rs 5,000 investment in a bond will be redeemed for Rs 50,000 at the end of 21 years and three months. The yield on deep discount bond ranges between11.3% to 11.4%.

Currently IDBI is in the market with three schemes under the IDBI Regular Return plan. Under the plan, bond-I has a tenure of three-years with an annualised coupon of 11.40%. It also has a `put' and `call' option at the end of one and two years.

The bond-II is a three-year paper without any put and call option and offers 11.75%, while bond-III is a five-year paper offering 12%.

Currently investors can make the most of the high interest rate regime by parking their funds in medium to short-term papers offering higher returns. Looking at the current interest rate scenario, it makes better sense to block funds in short to medium term bonds rather fixed deposits offered by banks as bonds are currently offering better returns.