Lafarge India plans to raise Rs 500 crore via bond market

MUMBAI: Lafarge India, the Indian subsidiary of French cement manufacturing major, is planning to raise Rs 500 crore through the local bond market, as interest rates are likely to fall after Reserve Bank of India cut key policy rates by 0.25% in January. “The company will raise the bonds in tenors of two-three years,” two people familiar with the development told ET on condition of anonymity. A mail sent to the company, however, remained unanswered till the time of going to press.

“The coupon may be anywhere around 9.15-9.20% for these bonds, since they are not frequent issuers,” said a bond broker from a Mumbaibased brokerage. India Ratings has assigned AA+ rating to the bonds.

The Lafarge bond issue signifies a clear trend in the Indian bond market, with a growing number of manufacturing companies coming to raise funds through the local bond market. This is largely due to the interest rate arbitrage that companies can currently make over bank loan. But after RBI cut the repo rate or the operational rate by 25 basis points to 7.75% and cut the cash reserve ratio by 25 basis points, the arbitrage is likely to shrink as banks begin to cut their base rates.

In the calendar year 2012-13, manufacturing companies raised Rs 66,000 crore from the debt market, the highest they have raised from Indian debt capital markets. Some of the prominent issuers were NHPC, Hindalco, Ranbaxy and Tata Steel.

Currently, State Bank of India has the lowest base rate among public sector banks at 9.70% while Citibank has a base rate of 9.50%. Base rate is the benchmark rate for banks, below which banks cannot lend. Currently, the best-rated two-year papers are trading at 8.92%. According to debt arrangers, companies are waiting for yields on corporate bonds to soften further from the current levels, before they come to the market.

Yields on corporate bonds have not softened substantially after RBI cut key rates, as liquidity in the system continues to be tight and money market dealers await bunched-up redemptions of certificate of deposits in February-March.