Exim Bank to go for euro bonds to raise funds
New Delhi: Exim Bank plans to raise over Rs1,300 crore through its euro bond issue as part of its Rs7,000 crore borrowing programme for this fiscal. Company sources said the bonds will be issued when markets are favourable. The Reserve Bank of India has already approved Exim Bank's proposal for raising external commercial borrowing worth $300 million from the overseas markets. This will be the first time when Exim Bank is tapping the international bond market. The proposed euro bonds also assume significance in the wake of weakening of dollar against the Indian rupee and all other major currencies. Exim Bank has so far raised $1.2 billion dollars in debt with maturity period ranging from 1-20 years.
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Bond markets continue slide
Mumbai: Bond price continued on the downward path as traders, unnerved by contradictory statements from the Government, continued to sell bonds for the fourth consecutive week. In the light of the huge expenditure plans outlined by the government's CMP and no real articulation on the continuance of reforms and cutting back of subsidies, few traders accepted the FM's statements that the soft rate bias would continue. This has resulted in reserve money build-up substantially slowing during the week. The slowdown in reserve money accretions was partly on account of the deceleration in the foreign currency flows.

The presence of oil companies also contributed to driving down yields. Several oil companies have been sourcing forward covers for their import requirements, when prices dropped below $40 a barrel. Both private and public sector companies locked into low prices and simultaneously hedged in the foreign currency markets as well. With liquidity also tightening as was evident from high call rates. Call rates were closer to the bank rate and ranged between 6 and 6.5 per cent during most of the week. Moreover, the amount mopped up under the seven-day repos dropped to Rs8,500 crore.

This mop-up was mostly rollovers from the previous seven-day repos, traders said. Foreign banks and insurance companies sold bonds substantially to stop losses. This accelerated the slide. The undertone was weak and volumes remained thin. Average trading volumes were only about Rs3,500 crore. Spreads between one and 24 years remained high at 160 basis points. In addition to this inflation already at 5.02 percent is an additional worry. Consequently, real yields were low compared to international levels, where it was in the region of about 1.5-2 per cent above the inflation rate.

Traders are expecting substantial increase in Government expenditure and a rise in the public sector borrowing requirements.
Foreign exchange flows also eased off considerably. Up to April, the average flows were in the region of about $250 million per day. These flows presently were barely $50 million. Exporters had deferred their inward remittances, hoping to cash in on a weakening rupee and larger forward premia. Foreign institutional investors were seen quietly exiting and also beginning to take forward cover for their exit.
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