(Sept 28): Two state-run Indian companies have withdrawn plans to raise US$688 million (RM2.81 billion) through rupee bonds as an expected interest-rate increase and the central bank’s move to drain surplus cash drive borrowing costs higher.

Sagarmala Finance Corp, which funds India’s maritime projects, on Monday pulled the country’s first blue bond — a type of debt typically associated with water conservation — worth as much as six billion rupees (RM255.18 million). While the New Delhi-based company expected to price the 10-year paper “below 8%”, it got bids at a coupon that was higher than expected, managing director LVS Sudhakar Babu said in a text response.

Small Industries Development Bank of India, another state-run issuer, on Friday cancelled a 60-billion-rupee sale of notes due in December 2029 after getting coupon bids in the range of 7.6% to 8.1%. Earlier this month, the lender raised 58.89 billion rupees through bonds maturing in October 2029 at 7.70%.

Borrowing costs are rising as the Reserve Bank of India is expected to tighten monetary policy later this year to contain oil price-driven inflation. The RBI is also reducing liquidity in the banking system to prevent cheap loans from fuelling cost pressures after a special programme to support the rupee netted a record US$133 billion in diaspora deposits.

State-owned Power Grid Corp of India Ltd on Monday accepted bids for just 20 billion rupees compared with its planned fundraise of 50 billion rupees, even after receiving offers for the entire issue at a 7.74% coupon, according to people familiar with the matter, who didn’t want to be identified as the information is private.

A query emailed to Power Grid did not immediately elicit a response.

The average yields on top-rated three- and 10-year bonds issued by Indian state-run companies have climbed 14 basis points and 20 basis points, respectively, in September, on track for a third straight month of increase, according to data compiled by Bloomberg. Surplus liquidity at banks stood at 4.6 trillion rupees as of Sunday, according to a Bloomberg Economics index, down from a record of almost 11 trillion rupees earlier this month.

Global bond yields are also at a multidecade high with investors now pricing in a 70% probability of a US Federal Reserve rate hike next month, up from about 65% on Friday.

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