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Informist, Thursday, Mar. 6, 2025

 

--Sources: Canara Bk likely to raise up to INR 40 bln via 10-yr tier-II bonds 

--Sources: Canara Bank may seek bids for 10-yr tier-II bond issue in 2 weeks 

 

By Sachi Pandey

MUMBAI – After a three month hiatus, tier-II bonds return to the corporate bond market, with Canara Bank looking to raise funds, three sources in the know told Informist. The public sector bank is likely to raise up to INR 40 billion through Basel-III compliant tier-II bonds maturing in 10 years, and may tap the market in two weeks, sources said.

 

The issue is likely to have a base size of INR 10 billion and a greenshoe option of INR 30 billion. The bonds may carry a call option at the end of five years from the date of allotment, according to sources. "They are in final stage (of tier-II bond issuance). Most of the things are finalised just the coupon is to be looked at, which is why they are taking some time to announce the bidding details," a merchant banker told Informist. 

 

This could be the first tier II bond issuance by the bank in 2024-25 (Apr-Mar). The bank had approved raising up to INR 85 billion through issuance of Basel-III compliant tier-I and tier-II bonds during the current financial year, of which it has only raised INR 30 billion in August through tier-I bonds at a coupon of 8.27%. Seperately, it had raised INR 100 billion through infrasructure bonds maturing in 10 years at a coupon of 7.40%. 

 

During the post-earnings media call, the bank's Managing Director and Chief Executive Officer K. Satyanarayana Raju had said that the bank may raise INR 15.00 billion of bonds in the Jan-Mar quarter. "If the market is conducive for us and if we feel that we can raise at a lower rate, we may raise INR 15.00 billion tier II bonds," he said. 

 

According to market participants, the bank aims to raise funds through tier-II bonds in the range of 7.40-7.45% coupon. "Yesterday (Wednesday), RBI (Reserve bank of India) gave some relief fund with OMO (open market operations) and then for liquidity, they have buy-sells, swap-sells that they are doing. So market is somewhat going to get better. And also generally tier-II bonds should go 10-15 basis points above infra bonds, and infra bonds currently would be at 7.30% kind of level so 7.45?ntric levels sounds fair to them," a source closely ivolved in the transaction told Informist. 

 

However, the general market consensus is that the coupon might go as high as 7.60%. "Tier-II is capital and has its own pricing norms. So it does not move for every 2-3 bps movement in government securities. Even though this will be a 5-year call, as a capital it will have a much different pricing to infra bond," a market participant told Informist on the condition of anonymity. 

 

After market hours on Wednesday, the RBI said it would buy gilts worth INR 1.00 trillion through open market auctions in March. In addition, it would conduct another dollar/rupee buy/sell swap auction of $10 billion for a tenure of 36 months on Mar. 24. 

 

On Feb. 21, CARE Ratings Ltd. assigned 'AAA' rating to Canara Bank's INR-40-billion tier-II bonds with a stable outlook, the bank had informed exchanges. CARE Ratings considered the majority ownership and consistent capital support the bank gets from the government in assigning the rating. As of Dec. 31, the government held 62.93% stake in the bank.

 

On Thursday, shares of the bank closed 0.4% higher at INR 85.35 on the National Stock Exchange.  End

 

Edited by Akul Nishant Akhoury

 

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