Sensex Closes on a Negative Note; HDFC Finishes Down by 1.6%

Mon, 19 Dec Closing

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Indian share markets began the trading week on a negative note and finished in red for a fourth straight session amid weak global markets. At the closing bell, the BSE Sensex stood lower by 115 points, while the NSE Nifty finished down by 35 points. Meanwhile, the S&P BSE Mid Cap & the S&P BSE Small Cap finished down by 0.5% respectively. Losses were largely seen in pharma and consumer durable stocks.

Asian markets finished broadly lower today as China's bond market witnessed a sell-off last week amid tightening of short-term credit by China's central bank. The Hang Seng is down 1.03% while China's Shanghai Composite is off 0.16% and Japan's Nikkei 225 is lower by 0.05%. European markets are mixed. The DAX is higher by 0.04%, while the CAC 40 is leading the FTSE 100 lower. They are down 0.36% and 0.07% respectively.

The rupee was trading at 67.80 against the US$ in the afternoon session. Oil prices were trading at US$ 51.28 at the time of writing.

According to a leading financial daily, ONGC's overseas arm - ONGC Videsh (OVL) has raised US$1 billion through a US dollar bonds issue to finance its acquisition of 15% stake in Russia's second biggest oil field Vankor. The proceeds of the issue would go to refinance a US$1.2 billion bridge loan the company had taken from a group of foreign banks to make payments for the US$1.268 billion acquisition.

OVL has raised US$600 million through a 10-year bond at a coupon rate of US treasury rate plus 2.20% and another $400 million through a 5.5-year maturity bond at an interest rate of US treasury rate plus 1.75%. The effective rate comes to 3.75% for US$600 million bond and 2.875% for US$400 million papers. Vankor is Russia's second largest field by production and accounts for 4% of Russian output.

Meanwhile, OVL recently signed an agreement with Petroleos De Venezuela SA (PDVSA) for facilitating redevelopment of the San Cristobal joint venture project in Venezuela.

The redevelopment plan aims to increase the current level of production of about 18,000 barrels per day to 27,000 barrels a day by use of water flooding techniques. The agreement also provides for mechanism to liquidate OVL's outstanding dividends from the project and to obtain term finance for the US$ 318 million capital investment for implementing the redevelopment plan.

OVL's output stood at 8.914 million tonnes of oil equivalent (mtoe) in FY16, hardly 1% more than the 8.874 mtoe it had produced in the previous year. The company is expected to achieve double-digit production growth in FY17 after it gets its share from the Vankor oilfields in East Siberia.

OVL's Production Data for the Last 5 Years

In addition, production from Imperial Energy is showing signs of improvement. OVL's assets in countries such as North and South Sudan, and Syria are in distress because of geopolitical disturbances.

ONGC's share price finished the trading day down by 0.1% on the BSE.

Moving on to news from stocks in investment and finance sector. According to an article in The Financial Express, the Reserve Bank of India (RBI) has granted mortgage major Housing Development Finance Corporation (HDFC) a permission to raise another Rs 30 billion through masala bonds. The masala bonds are rupee denominated bonds where the investor takes the currency fluctuation risk while the borrowers don't bear the risk. Such bonds are ways to raise capital in overseas in rupees rather than in local currency.

Although HDFC had already exceeded the limit of raising Rs 50 billion, due to the newly emerging route, the freshly granted permission will now support the company to raise more money.

Reportedly, the rate of interest at first section came at 8.3% wherein the second phase might comprise an interest rate of 7.25%. One must note that, yielding 8.33%, the bond attracted 87 billion rupees in bids.

Though not at all a favourable time to raise money as Fed rates have been increasing lately along with taking a look at the present scenario due to demonetisation rule, the firm is taking a call over fundraising matters after the holiday season. Subsequent to which a new set of funds will be raised after the following amount has been retained, the company stated.

In one of our editions of The 5 Minute WrapUp, we have spoken about how Indian firms are looking to tap cheap funds from overseas market through masala bonds. With infrastructure firms increasingly looking to tap funds through masala bonds, the success of these bonds is likely to come to the rescue of these firms stuck in a debt trap. This in turn will provide the much needed leg-up to investments in the country.

HDFC's share price ended the day down by 1.6%

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