38 billion in Rupee Securities, which don’t have market determined interest rates this month to lower borrowing costs. Government is reversing policy by issuing Rs. 38 billion in Rupee Securities, which don’t have market determined interest rates this month to lower borrowing costs. Most of the rupee security stock is held by the state managed pension funds and the National Savings Bank (NSB).
This month’s issues will come with maturities of 4 to 10 years with a call option at the end of the 4th year.
The first traunch of the 38 billion in rupee securities were issued on Friday which was brought by the government owned National Savings Bank (NSB) and government managed Employees’ Provident Fund (EPF).
They were the first rupee loans to be issued since the previous UNF government discontinued issuing them some years back.
Existing loans were being phased out by not reissuing them when they mature.
Attempts by LBR to confirm the size of the issue were unsuccessful.
But Public Debt Department t of the Central Bank said Rs. 38 billion worth of the securities will be issued this month.
Friday’s issue was for 10 year rupee securities that pay 8.55 percent interest annually.
The rate is much lower than market rates for government issued bonds that carry a similar risk.
Five-year bonds, the longest tenure traded in the market, were yielding of 8 point one nine percent on Friday.
A Central Bank official, who did not wish to be identified, said the government was issuing rupee securities as the interest rates for these were not market determined and these securities are generally purchased by the State managed pension funds and the NSB.
The securities have a call option at the end of four years which making it possible for the government to retire them early in case interest rates are at lower by then.
Analysts say private sector players like insurance companies are unlikely to purchase the securities as there is no exit mechanism.
The EPF managed by the Central Bank holds nearly half the outstanding rupee loans.
Ninety nine percent of the EPF portfolio is invested in government securities.
NSB also holds a sizable rupee security portfolio but its officials could not quantify it when contacted on Friday.
Central Bank says total outstanding securities at end last year were Rs.
164 billion compared to Rs. 248 billion one year ago.
-LBR Newsdesk: LBOEmail@vanguardlk.com