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Thursday, March 24, 2011

SBI bonds listing: Dalal Street debut yields 3% returns

AHMEDABAD | MUMBAI: SBI's retail bonds traded the highest ever for a fixed income security on debut on bourses, yielding 3% returns for investors, but it may not yet be the beginning of evolution of a vibrant bond market which regulators and the government are hoping for.

The nation's largest bank's bond sale may be a one-off event as hardly any issuer could match SBI's clout both in network, marketing costs and branding.

The debut trading price was lower than investors expected as many retail traders sold off their bonds ahead of the fiscal year ending March 31 and the possibility of further rate increases that could lower bond prices.

The bonds worth Rs 8,500 crore traded for Rs 2,900 crore, or Rs 28.28-lakh bonds, after starting to trade at 10,200 a bond. Its intra-day high was Rs 10,373 and the low was Rs 10,170, before ending at Rs 10,267.42. "The marketing cost of issuance is high almost about 2-2.4%, if the issuer is to reach out to the masses," says JP Morgan MF chief investment officer Nandkumar Surty.

RBI and the government have been talking for more than a decade to make the bond market vibrant, but it hardly happened due to various regulatory and tax issues. Response to bond floats from infrastructure lenders this year reflects the poor appetite for them since they are not attractive and have poor liquidity.

SBI chairman Om Prakash Bhatt created a flutter when he offered the highest coupon on bonds, surprising and drawing criticism from some. But the rest of the market is now following as they scramble for funds in a rising interest rate regime.

SBI's Rs 2,000-crore public sale of 10-year bonds at 9.75% and 15-year ones at 9.95% with call options last month received bids for at least Rs 8,500 crore. While more than two lakh retail investors got full allotment, funds and wealthy individuals who bid for more than 5 lakh were given just a fourth of what was bid for. It was allotted on the first-come-first-serve basis. This was despite SBI restricting its collection centres that drew criticism from investors in smaller towns and cities.

Applications were accepted in just 126 or less than a percentage of its branches. The sale was supposed to take the bond culture to retail investors. However, there was just one collection centre in Guwahati for eight northeastern states. Bihar and J&K had one each, Gujarat at least 15 while Mumbai alone had seven centres.

"I think this was like a promotional offer for retailers. We have also observed retail participation in the bond market for the first time. Many buyers, in fact, do not know much about the bond market," said Meghal Shah, an Ahmedabad-based stock broker.

But the trading interest may wane in the next few days as those traders who had profits have locked it up. "Yields are likely to see some correction, as the selling pressure eases and they may see some alignment around yields seen in the bonds dealt in the whole sale debt market (around 9.15-25%)," said Edelwiess Capital senior vice-president Ajay Manglunia.

Source: EconomicTimes


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