Informist, Friday, Sep 13, 2024

--Sources: SBI may raise up to 75 bln rupees via tier-II bond next week

By Sachi Pandey

MUMBAI – State Bank of India, the country's largest lender, is likely to return to the debt market next week with a fresh batch of tier-II bonds, putting on hold its earlier plan of a tier-I bond offering, sources aware of the development said.

According to merchant bankers, the bank plans to raise up to 75 bln rupees through tier-II bonds. "The structure will be similar to the last issuance," a source closely involved in the transaction told Informist.

"They had approval of around 15,000 cr (150 bln rupees) for tier-II, and they raised only half of it, so they want to raise the rest of the amount now," another source told Informist.

On Aug 28, the bank raised 75 bln rupees through Basel-III-compliant tier-II bonds maturing in 15 years at a coupon of 7.42%. The issue, which had a base size of 50 bln rupees and a greenshoe option of 25 bln rupees, was fully subscribed. In early August, the bank's board approved raising a total of 250 bln rupees through Basel-III compliant additional tier-I and tier-II bonds in 2024-25.

According to sources, SBI was expected to tap the bond market with tier-I bonds in September, aiming to raise 70-100 bln rupees with a call option after five years. However, the bank may have changed its plans due to various factors, they said.

"While there's approval for tier-I bonds as well, it requires the government of India's approval, and I don't know if that approval has come or not. So, it is not as straightforward. Timing is not the only factor there, it all depends on the approvals in place as well," said the source involved in the transaction.

Market experts point to weak demand for tier-I bonds and stronger appetite for tier-II bonds, along with a limited supply of the latter, as possible reasons for the shift in SBI's plans.

"Tier-II will have better demand, especially in this environment, where the larger bet is on rates going down as the benchmark shifting lower and, accordingly, all the rates are shifting lower. But SBI wouldn't struggle to raise funds through tier-I bonds either," Pankaj Pathak, senior fixed income fund manager at Quantum Asset Management Co, said. "My guess is that it will be more related to cost, because they don't need tier-I capital right now, so they are opting the tier-II route to raise their growth capital, which is highly cheaper."

The bank's Basel-III capital adequacy ratio was at 13.86% on Jun 30, down from 14.28% on Mar 31. The bank's common equity tier-I capital ratio also tightened to 10.25% from 10.36% a quarter ago.

So far this financial year, only Canara Bank has tapped the market to raise funds through tier-I bonds. The bank raised 30 bln rupees through this instrument, at a coupon of 8.27%. The issue, with a call option at the end of five years from the date of allotment, was fully subscribed. The coupon was 138 basis points higher than the annualised yield on the five-year benchmark government bond.

According to merchant bankers, other large public sector banks are also making a beeline to tap the debt market with tier-II bond issuances. On Thursday, Informist exclusively reported that Bank of India might raise up to 25 bln rupees through tier-II bonds in a couple of weeks. Other than State Bank of India, only Bank of Maharashtra has hit the market with this debt instrument so far this financial year, raising 10 bln rupees. End

Edited by Avishek Dutta

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