Believe it or not, the creditworthiness of some Indian corporates could be higher than that of the government of India.
A massive liquidity overhang with the liquid schemes of the mutual funds and lack of similar liquid instruments in the market is helping corporates raise funds through commercial paper at finer rates than the government, bond dealers said.
One such case cited by dealers is the Ambuja Fertiliser which is learnt to have raised three-month CP at a 10 basis points spread over the three-month Mumbai Interbank Bid Offer Rate (Mibor).
While three month Mibor is at 5.04 per cent, Ambuja Fertiliser's cost of funds works out to 5.14 per cent. Mibor is the benchmark rate for the Indian markets which is pegged to the government securities.
Three month Mibor is linked to 91-day treasury bills.
On the other hand, the government raised money through 91- day treasury bills at the latest auction held on Wednesday at a cut of yield of 5.16 per cent.
The mutual funds are flush with funds, especially in their liquid schemes. This is because corporate with surplus liquidity are wary of putting funds in government securities or corporate bonds following the hike in the benchmark rates.
The yield on the ten-year benchmark paper is ruling around 6.75/83 per cent. Interbank call rates are ruling at attractive levels of 4.6-4.7 per cent due to moderation of liquidity in the system. However, mutual funds have limited access to this market, said a dealer.
Banks are cutting down their investments in government securities and preferring to keep funds idle or parking them in the liquid schemes.
In fact, most banks are preferring to put money in vanilla loans as it is not marked to market like investments. This way they could also avoid depreciation loss in their investment portfolio," said a banker.
Mutual funds, on the other hand, have to put these funds in instruments of matching maturities. Except for 91-day treasury bills, there are no other instruments available wherein they could park funds. Any spread over T-bills is preferable, said a bond dealer.