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MUMBAI: Tractor maker Mahindra and Mahindra will follow Gujarat State Petroleum and Tata Power in selling long-term bonds to raise funds. Mahindra will issue bonds with 50-year maturity to raise 500 crore.
The funds will be used for capital expenditure and refinancing. The company aims to pay 9.55% coupon on the bonds underwritten by YES Bank. Given the AA+ rating from Crisil, and rising bond yields across the globe, investors may demand higher yields, say bond traders.
"M&M wanted to do a benchmark deal with a maturity horizon heretofore unexplored, leveraging its credit profile and rare issuer status," said VS Parthasarathy, Mahindra's group chief investment officer, finance & accounts.
The bonds, rated AA+ by Crisil Ratings, do not carry any put and call options to help investors exit before maturity.
The Reserve Bank of India has cut key policy rates by 125 basis points since April last year. A basis point is one hundredth of a percentage point. The rate cuts have pushed down the bond yields to as low as 7.2%. However, the yields are firming up now, on expectation of a squeeze on global liquidity.
Yields on 10-year best-rated corporate paper have fallen by more than 100 basis points since August last year and are trading at 8.5% now.
Gujarat State Petroleum Corporation issued 60-year bonds in September last year at a coupon rate of 10.45%. Tata Power issued hybrid 60-year bonds at 10.75% in August last year. The coupon rate for the Mahindra bonds are only 20 basis points lower. When interest rates on bonds rise, their prices fall, and vice versa.
"I still feel it is an aggressively priced bond," said a bond dealer from a private bank. Even if PSUs (rated higher) issue bonds above 15 years, they will have to pay above 9%. So, investors may ask for more, since it's a corporate and is rated lower than AAA."
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