IOC cancels bond issue for better pricing amid market liquidity

Mumbai: Indian Oil Corporation called off its bond issue on Wednesday despite receiving an overwhelming response, hoping to get a finer price for its five bonds in the coming days with increased liquidity in the banking system and lower rates, market participants said.

The triple A-rated bond issue, with base size of ₹1,000 crore and a greenshoe option to retain an additional ₹2,000 crore, received bids worth ₹9,830 crore.

Bids worth ₹3,100 crore were at 6.51%, yet IOC decided to wait for finer pricing.


ET has reviewed a copy of the bid book.

The five-year government paper closed at 6.11%, implying that the company could have closed the issue at a spread of 50 basis points above the sovereign paper of similar maturity. Corporate bonds are priced at a spread over government bond yields.

Another state-owned issuer REC Ltd on Wednesday raised ₹1,922.5 crore by offering its AAA bonds maturing in four years and six months at 6.70%.

IOC is the second company to withdraw its bond issue this week. On Monday, PFC had withdrawn its ₹2,000-crore zero-coupon bond issue, likely because investors were seeking higher yields than what the company was willing to pay.

The Reserve Bank of India last week reduced policy rate by 50 basis points to 5.5% and cut the cash reserve ratio (CRR) for banks by 1%, which will infuse ₹2.5 lakh crore in phases from September onwards. This, along with a surplus liquidity of ₹2.61 lakh crore in the banking system, is encouraging several companies to tap the bond market.

However, recent cancellation of bond issuances underscores a clear disconnect between issuers and investors, said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap, a fixed income institutional advisory firm.

“Issuers, buoyed by the recent outsized rate cuts, are seeking finer pricing. However, the reversal in yields across tenors following the initial post policy rally and driven by the RBI’s change in stance has made investors more cautious,” Srinivasan said.

“While demand remains strong, investors are unwilling to compromise on yields in an evolving rate environment with steady supply, and many prefer to wait and watch how system liquidity plays out in the coming days,” he added. Short-term corporate bond yields have reversed to prepolicy levels mainly because of the change in the monetary policy stance to ‘neutral’ from ‘accommodative’.

After the policy announcement, between June 5 and June 10, yields on AAA-rated public sector undertaking bonds, which are seen as proxy to sovereign papers, increased from 6.63% to 6.72% for the 5-year maturity and from 6.85% to 6.97% for the 10-year paper in the secondary market. These levels serve as indicators for bidding in the primary issuances.