StanChart-Air India bonding leaves Mint St rivals fuming

Mumbai: High-street banks and bond houses are raising a hue and cry over a recent deal between Standard Chartered and Air India. They are alleging that the national carrier sold securities at a price which helped the British bank make a killing in the bond market.
While StanChart officials argue that it’s a story of sour grapes, institutions which missed the deal claim that the transaction took place in a strange way, and Air India could have cut its borrowing cost had the company handled the fund-raising differently.
The National Aviation Company of India (Nacil) — the entity which owns Air India — placed 10-year bonds at an interest of 9.13%, payable semi-annually, around March-end 2010 with StanChart. All hell broke loose within a few days, when StanChart sold a slice of the portfolio to a retirement fund at an yield of around 8.70% — a lower yield means a higher bond price and vice versa.
“The paper had a central government guarantee...other PSUs sell bonds at 60-70 basis points above the underlying government security and there was no reason for Nacil to pay more than 8.70%,” said a bond trader with one of the institutions which lost out on the deal.
A senior Air India official told ET , “The agreement that Standard Chartered would be the lead arranger for the bonds was taken a year ago and was part of a commercial borrowing (15% of the entire value) bid document of a billion-dollar aircraft funding deal.”
According to a StanChart official, since the deal happened in March 2009 when the market was difficult, the central government guarantee had not yet come and Air India’s balance sheet was in a bad shape, it was not possible to price the paper at the customary spread over the government security.
03/04/10 Sugata Ghosh & Manisha Singhal/Economic Times

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Categories: Foreign Apr 2010, NACIL Apr 2010