India Infoline Investment Services Limited which had raised money for its bond issue which had two coupon rates of 11.7% and 11.9% listed today and turned out to be a complete disaster. The bonds which were issued to retail investors at a coupon of 11.9% and had a face value of Rs 1000, ended trading day at a price of Rs 921.35, a discount of Rs 78.65 or 7.86% to the issue price. This discounted price would correspond to a yield of 12.91% which is a good 0.65% higher than any bond scheme offered till today in this present round. The weighted average of the day’s trade on the BSE was Rs 941.01. On the NSE things were not much different and the bond closed the day at Rs 929 and the weighted average was Rs 939.36.
What happened for such a big fall? Was it the market or was it the fact that the other three bonds did not have liquidity? These questions would remain unanswered for some time but it has certainly impacted the two issues currently on. The issue from Mannapuram which had opened on the 18th of August is yet to close andis likely to do so on probably the 26th of August. The other issue from Muthoot Finance has opened on Tuesday the 23rd of August and is scheduled to close on the 5th of September.
There is certainly going to be withdrawals in the Mannapuram issue and the Muthoot Issue. There could always be a logic used that if in the secondary market the yield on the bond is 12.9% and an additional yield on maturity of the current discount of 7.86% which would translate into an average yield over the life of the bond of 1.57% or put in other words a gain of Rs15.7 per bond every year.
The poor performance is going to put all further bond issues under tremendous pressure and it would be important to note how the two issues currently open react to this situation. Incidentally the issue from India Infoline and the two issues currently open all have the same credit rating of AA- (double A minus) and are therefore similar as far as fundamentals are concerned. The coupon rate at the upper end varies from 11.9% to 12.25%. There could be only one point of argument which holds good that the coupon in the case of IIISL was the lowest and therefore there was selling pressure. However this gets negated when you look at the fact that the same bond is now available at a substantial discount and the effective yield works out to a huge premium even to the highest bond yield on offer currently.
Probably the listing of the bond issue from Shriram City Union will throw some light on the performance of this issue and the next and also set a trend for future bond issues. One hopes that the poor performance of IIISL is not repeated in other bond issues on listing.