Inverse floating bonds are fast catching on. Aluminium maker Hindalco today floated a Rs 50-crore bonds issue, with an inverse floating interest rate structure. This is the third such issue in the market. Grasim had launched two inverse floating issues during this month.

ABN Amro Securities is the sole arranger to the Hindalco issue. The issue has been rated "AAA" by Crisil, rating highest safety. This issue is the first in the country, where the coupon rate is arrived at based on the 6-month forward rate for the US dollar. In such issues, the coupon is the difference between a fixed rate and a floating benchmark.

Usually, this kind of a structure provides investors with a higher return in a falling interest rate scenario. The Hindalco bonds have two options. The first has a 5-year tenor and a put/call option at the end of 3 years.

The coupon, payable semi-annually, will be the difference between 13.40% and the National Stock Exchange's Mibor rate, a benchmark for call money. Based on this structure, the semi annualised rate works out to 7.65%.The second option has a 7-year maturity and a put/call option at the end of 5 years.

The coupon, also payable semi-annually, will be the difference between 14.25% and the 6-month Reuters Mumbai Interbank Forward Offer Rate, which is the sum of the 6-month rupee premium on the forward dollar and the dollar Libor.

The 6-month forward is at 4.42% and 6-month Libor at 1.9%, which makes the floating leg of this structure at 6.32. Based on this, the semi -annualised rate will be 7.93% and annualised at 8.05%.

MUMBAI: TIMES NEWS NETWORK
[ FRIDAY, AUGUST 16, 2002 2:02:06 AM ]