SBI may tap mkt with additional tier-I bond offering in Sep - sources
Informist, Friday, Aug 16, 2024
By Sachi Pandey
MUMBAI – The country's largest lender, State Bank of India, is likely to raise funds through perpetual debt next month, sources in the know told Informist. These could be the first Basel-III compliant additional tier-I bond issuance by SBI in the current financial year.
The bank is likely to raise at least 70 bln rupees through perpetual bonds, one of the sources said. "They (SBI) have to call around 7,000 cr (70 bln rupees) this year so that amount will at least be raised. But it is still difficult to guess the quantum as AT-I (additional tier-I) is a different market, the issuer will have to assess demand before deciding on any amount," this source said.
In 2023-24 (Apr-Mar), the State Bank of India had raised a total of 81.01 bln rupees through two tranches of tier-I bonds, at coupon rates of 8.10% and 8.34%.
On Aug 3, the board of India's largest bank approved raising a total of 250 bln rupees through Basel-III compliant additional tier-I and tier-II bonds in 2024-25. "The total amount for both the bonds is finalised, but bifurcation is yet to be discussed internally," the source mentioned above said.
The bank is also expected to tap the market with tier-II bonds by the end of this month. According to a source closely involved in the transaction, the bank might offer tier-II bonds maturing in 15 years with an option to call back the bond in 10 years.
As of Jul 30, the bank's tier-I bonds were rated 'AA+' and tier-II bonds were rated 'AAA' by CRISIL Ratings.
According to merchant bankers, other large public-sector banks are also in talks to make a beeline for tapping the debt market with tier-I bond issuances. Earlier this month, Informist exclusively reported that Canara Bank might be the first lender to come up with an offering of additional tier-I bonds.
"Canara Bank will announce the details shortly, and SBI will follow soon after," a dealer at a private sector bank said. "If Canara gets a coupon in 8.40-8.50% (range), SBI will get a much sweeter deal."
Merchant bankers expect the coupon on State Bank of India's tier-I bonds to be set at a spread of around 90-100 basis points over the yield on the benchmark government security, similar to its bond offering last year. In January, the bank raised 50 bln rupees at a coupon of 8.34%, which was 104 bps higher than the annualised yield on the 10-year benchmark government bond at that time. In July 2023, the bank raised 31.01 bln rupees at a coupon of 8.10%, which was 91 bps above the yield on the benchmark bond.
The perpetual bond offering may also benefit from a revival in investor appetite for these papers after the Securities and Exchange Board of India, earlier this month, relaxed valuation mutual funds' norms for these papers. "SBI always has strong demand, but with the new guidelines, we can anticipate even more participation," another dealer said.
On Aug 5, SEBI issued new guidelines allowing mutual funds to value their additional tier-I bond holdings as per the bond's call option date, or yield-to-call, instead of the earlier requirement of valuing these as 100-year securities.
Today, shares of the bank closed at 1.13% at 812.10 rupees on the National Stock Exchange. End
