How did IOCL raise bonds at such lower rates in the onshore market?

IOCL just returned to the onshore bond market and managed to raise 5-year bonds at a price that is lower than what the markets are willing to pay to G-Secs. In fact, IOCL raised funds at a coupon rate of 6.14%, at a time when the similar maturing government bond is trading at an annualised yield of 6.29%. what this shows is that there is still a lot of appetite for bonds that pay lower yields provided the gap is not too high. That is a lesson for RBI.

Here is the specific case of IOCL. The company raised Rs.1,500 crore via five year maturity bonds at a coupon of 6.14%, nearly 15 bps lower than the sovereign yield. The issue also saw strong demand from investors. Against issue size of Rs.1,500 crore, IOCL got bids of Rs.5,403 worth of bonds at yields ranging from 5% on the lower end all the way to 6.7% on the upper end.

IOCL is interesting due to some other reasons too. It plans to increase crude purchases from Iraq by 11.5% in 2022 to 390,000 barrels per day (bpd) to compensate for the shortfall in supply from Mexico and Kuwait. Additionally, IOCL is also looking to buy Paradip Refinery from the beleaguered IL&FS.