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February 3, 2001
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Gujarat state bonds in limbo, markets look for rating pointers

NetScribes/Radha Ganesan

The money markets are waiting for a clearer picture to emerge out of the Gujarat quake to take a view on the debt papers issued by sub-sovereign entities and corporates based in Gujarat.

Trades in the secondary market for such papers have been thin of late, the market for such papers being typically illiquid, said dealers.

Market players felt that the valuations of such papers would not come under major pressure unless the credit ratings of these instruments were changed.

"Being an illiquid market, trades have been thin in the secondary market. This is a normal phenomenon and cannot be attributed to the earthquake," said a dealer at Darashaw Securities, the brokerage house.

"There was trading in the Gujarat State Road Transport Corporation bonds after the earthquake, and prices have not changed," said a dealer at Triumph International.

A fixed income research analyst at ICICI Securities also confirmed that they do not plan to change valuations of Gujarat state board or corporate bonds.

However, valuations are expected to change if and when the ratings of these instruments are changed. "We will wait for the rating agencies to ascertain the credit risk involved and move accordingly," said the ICICI Securities research analyst.

"There is a credit risk involved and once the exact losses are ascertained, we can see the impact on the bond prices," said a fixed income fund manager at Zurich India Mutual Fund.

But those planning to issue fresh bond floats will be required to offer a premium on the yield to attract enough funds, dealers said.

As a result, issuers would not like to enter the market now, as they fear that they would incur losses, said Shefali Sachdev, director at Credence Analytics.

In January, three Gujarat state entities were in the primary market: Gujarat State Fertilizers and Chemicals for Rs 850 million, Gujarat State Petronet for Rs 3 billion, and the Gujarat State Electricity Board (GSEB) for Rs 5 billion.

GSEB has already raised around Rs 2.5 billion of the notified amount. While the dealer at Triumph International maintained that the Board would not face hurdles in raising the rest, a fixed income analyst at Credence said that the going would be tough for GSEB.

The Complete Coverage | List of earthquake sites

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