Indian cos withdraw long-tenor bonds as investors seek higher rates

MUMBAI: India's ONGC Petro additions Ltd. (OPaL) is the second company in four days to be forced to withdraw its planned offering of 10-year bonds due to rising investor demand for higher coupon rates, analysts said.

"OPaL was anticipating that they will be able to get longer-term funds at a comparatively cheaper rate but the market has turned it down, because with the overall increase in risks they want higher premium, which is leading to a supply-demand mismatch," said Nagesh Chauhan, head of debt capital market at Tipsons Group.

Earlier in the day, OPaL ditched a planned 10-year bond offering, and accepted offers only on seven-year bonds to raise 1 billion rupees worth papers at 8.58 per cent coupon, Reuters reported.

The bids for the 10-year note were as high as 10.50 per cent from some investors, which forced the company to reject all of them, bankers said. On Wednesday, AAA-rated state-run company Power Finance Corp was also forced to withdraw a 10-year bond offering, leaving it with the option of raising funds only through three-year notes. It had received bids above 7.80 per cent, traders said.

India's 10-year benchmark bond yield was at 7.47 per cent, up five basis points this week, which has made market participants nervous over the future trajectory of interest rates.

Post the U.S. Federal Reserve's rate hike on Wednesday, some investors expect the central bank's December meeting to lead to a 50 basis points increase, pushing the rupee down further. "This could have led the investors to expect higher rates in corporate bonds too," said Venkatakrishnan Srinivasan, founder and managing partner at debt advisory firm Rockfort Fincap.

On Wednesday, the Fed raised rates by 75 bps to the range of 3.75 per cent-4.00 per cent, and said it will keep raising rates to fight inflation. The RBI repo rate stands at 5.90 per cent, with next rate decision due on December 7.