UPDATE 1-India's LIC Housing sells debt as deals set to revive

Tue Oct 8, 2013 6:12am EDT

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(Adds details of issuance plans for other borrowers)

* MSF rate cut, liquidity infusion seen key for spurring deals

* Pipeline increases for corporate debt deals

* Demand seen for quasi sovereign, regular private issuers

By Archana Narayanan

MUMBAI, Oct 8 (Reuters) - Mortgage lender LIC Housing plans to raise at least 2 billion rupees ($32.34 million) in debt, as Indian companies rush to take advantage of a bond rally following a surprise cut in an overnight interest rate on Monday.

LIC Housing Finance is selling three-year bonds at 9.45 percent, a source with direct knowledge of the deal told Reuters on Tuesday, marking a potential revival in corporate bond sales after issuance had slumped as the rupee fell to record lows.

Still, bankers warn only state-run companies or frequent private issuers will be able to sell debt given cash conditions remain tight and the cost of rupee funds high.

"Demand has revived for liquid state-run firm papers, but private firm bond sales will pick up only when investors find value," said Shashikant Rathi, head of debt capital markets at Axis Bank.

Rural Electrification Corp, Power Grid Corp of India, GAIL (India) Ltd and Nuclear Power Corp of India Ltd are among those finalising plans to issue debt, bankers said.

Other possible sales include IDFC Ltd and Housing Development Finance Corp, while Tata Global Beverages , an infrequent issuer, is scouting for 3.25 billion rupees in funds.

The Reserve Bank of India on Monday cut the marginal standing facility (MSF) rate by 50 basis points to 9.0 percent, delivering its second such cut in the overnight interest rate in three weeks.

Although the RBI had been widely tipped to cut the rate, Monday's action came much earlier than expected.

"This move by RBI is a relief," said a senior official from Steel Authority of India Ltd (SAIL), who did not wish to be named.

"We will wait for a couple of days for the volatility in the market to subside before we bring a bond issuance," the source said. SAIL last raised funds through a bond sale in May.

Bond yields eased as much as 22 basis points on Tuesday, while the cost of five-year funds for benchmark corporate debt stood at 9.35 percent in the secondary market, dealers said, sharply lower than the Reuters fixing of 9.65 percent on Monday's close.

Any revival in debt sales would mark a potential turnaround after data provider Prime Database showed domestic issuance slumped nearly 45 percent to 338.96 billion rupees ($5.48 billion) in the quarter ending September compared to a year ago.

Investors remain wary of corporate debt as companies broadly struggle with shrinking profits and face an economy growing at its slowest in a decade. ($1 = 61.8450 Indian rupees) (Editing by Rafael Nam and Michael Urquhart)

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