X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
IDBI's exercise of call option to hit investors - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Mar 18, 2000

    IDBI's exercise of call option to hit investors

    Industrial Development Bank of India (IDBI), has been raising funds through out this fiscal year on its flexibond issues at lower interest rates in line with the fall in the interest rate scenario. As a result of this it has decided to exercise the call options on its earlier existing high cost bonds that it has been holding.

    IDBI, is India's largest development finance institution and has been traditionally concentrating on project finance. It reported a turnover of Rs 74.6 bn for the year ending March'99.

    For its recent Flexibonds-8 issue IDBI offered a return of 11% for a five year bond issue. It cut the rate of interest on this by 150 basis points from the earlier 12.5% offered in Flexibonds-7 in July'99.

    The reason for IDBI to continue to raise funds via these bond issues is that they are able to raise funds now at much lower rates of interest. Also as these bonds offer tax sops investors are attracted to invest in these . IDBI's earlier flexibond issues offered interest rates ranging from 15%-17%. Hence they could easily use the funds they have collected in the last few bond issues to repay investors and finance the call option of the earlier series of these bonds.

    These bonds have both a call as well as a put option. In a scenario of falling or stable interest rates IDBI has the option to exercise the call options on these bonds and in a rising interest rate scenario the investors can exercise the put option. They can get back their funds and invest them in instruments which give them a higher return.

    In FY2000 IDBI has already exercised the call option on bonds amounting Rs 10 bn to Rs 12 bn, this has apparently helped it reduce its cost of funds from 13.5% in FY99 to 12.2% in FY2000. In FY2001 it has plans to redeem around Rs 25 bn to Rs 30 bn back to bond holders.

    Though from IDBI's point of view it makes sense to return the high cost debt, bond holders will be in a fix. Many investors have locked in their funds in the various bond options varying for a period of 5-7 years and in some cases even for a longer period of time. Hence they will now be left with the option of investing these funds at much lower rates of interest in other places as interest rates have fallen in the last couple of years. The more strong hearted investors would probably be turn to the capital markets which have been very buoyant recently and could give them a higher rate of return. This could lead to higher investments flowing into the stock markets in the next one year.

    The Indian investors are not used to receiving back their funds before time and this scenario could lead them to cautiously track their investments in future and gear them up for such possibilities again. In future they will learn to be more proactive towards their investment decisions.

    Market View:
    As the market is still concerned about IDBI's NPA's it is rated as a "SELL" by many analysts

     

     

    Equitymaster requests your view! Post a comment on "IDBI's exercise of call option to hit investors". Click here!

      
     

    More Views on News

    HDFC: Red Flag in Developer Loans (Quarterly Results Update - Detailed)

    Aug 10, 2017

    HDFC starts FY18 on robust loan growth but asset quality slips on increased exposure to developer loans.

    Shriram Trans Fin: FY17 Ends on a Tepid Note due to Regulatory Headwinds (Quarterly Results Update - Detailed)

    Jun 22, 2017

    Demonetisation led slowdown coupled with shift to stringent bad loan norms keep Shriram Transport Finance on a slow wicket.

    Power Finance Corp: Alignment with RBI Norms Knocks Down FY17 Earnings (Quarterly Results Update - Detailed)

    Jun 14, 2017

    Power Finance Corporation earnings hit by RBI mandated higher provision on state government power generation projects where the recovery continues to be 100%.

    IDFC: Ends FY17 on a Healthy Note (Quarterly Results Update - Detailed)

    May 30, 2017

    IDFC regains its tempo in FY17 post the demerger of the banking business.

    HDFC: Conservative Provisioning tempers down FY17 earnings (Quarterly Results Update - Detailed)

    May 9, 2017

    HDFC ends FY17 on a tepid note as it remains conservative on the asset quality front.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    Proxy Plays: A Smart Way to Bet on 'Off Limits' Companies(The 5 Minute Wrapup)

    Aug 4, 2017

    The small-cap space is full of small players that are clear proxies to great growth stories and Indian megatrends.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    IDBI BANK SHARE PRICE


    Aug 17, 2017 (Close)

    TRACK IDBI BANK

    • Track your investment in IDBI BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks

    IDBI BANK - DEUTSCHE BANK COMPARISON

    Compare Company With Charts

    COMPARE IDBI BANK WITH

    MARKET STATS