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Informist, Wednesday, Oct. 23, 2024

 

--Sources: Axis Bank likely to raise funds via tier-I bond issue post Diwali

--Sources: Axis Bank may raise up to INR 30 bln via additional tier-I bond

 

By Sachi Pandey

 

MUMBAI – Axis Bank, the country's third-largest private-sector lender, is likely to raise funds through the issuance of perpetual debt instruments next month, multiple sources told Informist. This could be the bank's first Basel-III-compliant additional tier-I bond in the financial year 2024-25 (Apr-Mar).

 

The bank is likely to raise up to INR 30 billion through a tier-I bond, according to four persons familiar with the matter. "They are in discussions with the market and investors for a tier-I bond with a 10-year call. The amount I think is 3000 crore (INR 30 billion)," one of the persons said, speaking on condition of anonymity.

 

Another person said the bond issuance may not materialise in October. "October seems difficult. It's already the 23rd (Wednesday) and the discussions and other work are still ongoing. They will come post-Diwali," this source said.

 

The bond issuance is likely to have a base size of INR 10 billion and a greenshoe option of INR 20 billion and may carry a call option at the end of 10 years from the date of allotment. Merchant bankers familiar with the matter expect the coupon to be set at a spread of 135-140 basis points over the yield on a benchmark government security.

 

On Oct. 1, the bank told the exchanges that India Ratings and Research had reaffirmed its 'IND AA+' rating with a stable outlook for its outstanding Basel-III-compliant additional tier-I bonds worth INR 35 billion. Although the rating approval allows Axis Bank to issue up to INR 35 billion, the final amount could vary based on the bank's requirements, a source from another large private-sector bank said. "They have approval of 3500 crore (INR 35 billion), but it's not necessary they will come with that exact amount," the source said.  

 

In early September, Axis Bank had raised INR 39.25 billion through 10-year infrastructure bonds at a coupon rate of 7.45%.

 

The bank's potential bond issuance follows close on the heels of State Bank of India's tier-I bond offering Wednesday. The country's largest lender raised INR 50 billion at a coupon of 7.98% through the issuance. This was SBI's first additional tier-I bond issuance of FY25. "They were expecting some 95 levels (7.95%), but 3 bps higher they got the full amount, so it didn't matter much," the first source said. "The coupon is, of course, below 8%, but it is reasonable as SBI's secondary paper are trading at 7.80-85 levels, so 7.98 is actually a good level to add on." 

 

According to the bid book accessed by Informist, SBI's additional tier-I bond with a call option at the end of 10 years garnered 108 bids worth INR 70.23 billion at 7.50-8.30% coupon. So far, only Canara Bank and SBI have issued tier-I bonds this year, with Canara Bank raising INR 30 bln at a coupon rate of 8.27%.

 

Market participants believe the strong response to SBI's tier-I debt sale will encourage other public-sector banks to queue up with their own perpetual bond issuances. Commenting on this, one of the sources said, "SBI's coupon gives a benchmark, so issuers will now be more comfortable issuing tier-I as they can get an estimate of their coupon."

 

On Wednesday, shares of Axis Bank closed 1.3% lower at INR 1,160.40 on the National Stock Exchange. Shares of State Bank of India closed 0.6% lower at INR 786.  End

 

Edited by Rajeev Pai

 

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