SBI takes desi route for Rs4k-cr perpetual bonds
Considers raising funds overseas costlier as it involves hedging currency risk; Fund mobilization plan to hit mkt early September
State Bank of India (SBI), India's largest lender, is looking for raising fund through domestic market early next month. The amount to be raised by SBI in the form of perpetual bond will be to the tune of Rs 4,000 crore.
Unlike its peers like HDFC Bank, which had recently raised $1 billion overseas through Additional Tier-1 (AT-1) bonds, SBI is deliberately planning to raise money in the domestic market. The reason is not far to seek. SBI is intending to go for raising money in the domestic
market on September 1 or so. Though, the bank was yet to come up with any official announcement in this connection. If you go to the overseas market to raise money, you will definitely get substantial subscription. The only thing is that it comes at a cost. For raising money in the overseas market, you need to hedge currency risk and at this point of time currency along with its hedging cost, becomes costlier when compared to the domestic market.
"The bank has got AA+ rating on Tuesday only. As the rating of the perpetual bond is normally one notch lower than the overall rating which is AAA, the bank's forthcoming perpetual bond is rated AA+. The reason being that perpetual bond is not as risk free as normal bond. Banks usually do the capital raising only through the bonds," Ajay Manglunia, managing director, debt capital market at JM Financial, told Bizz Buzz.
Tier-II, comparatively, is much safer as in this form of fund raising, you don't have equity conversion or write-off and coupon skipping strings as Banks normally do lending which is always having a risk of turning NPA for any credit reasons.
For example, HDFC Bank did it at 3.70 per cent, but if you add up the hedging cost, it comes somewhere at 4.5 per cent. Both put together (3.7 per cent plus 4.5 per cent), it comes to be above 8 per cent which is costlier from the domestic market. But in the domestic market, these banks are all set to raise money at a cheaper cost, much less than 8 per cent. The only rider being that the size of the amount to be raised in the domestic market could be smaller, keeping in view the dried up market back home. That's why, SBI is raising the fund to the tune of Rs 4,000 crore only against the HDFC Bank's raising money to the tune of Rs 7,500 crore recently.
When it comes to the country's largest private sector lender ICICI Bank, it has no plan in immediate future to raise money as it is well capitalised and the recently did QIP in last year plus
quarter-on-quarter result for the bank keeps it in good stead with all the arms of the lender showing healthy financial results. When it comes to Axis Bank, it may not go for fund raising overseas by way of AT-1 bonds this month. Maybe it may raise fund amounting to $1 billion in the overseas market somewhere next month. seeking to garner up to $1 billion in ESG (Environment Social Governance) compliant instruments that should help the Mumbai-based private sector lender reduce its financing costs. To be deployed in green and sustainable projects, the ESG tag helps lower the coupon in this round of offering by about 15 basis points, compared with the usual AT-1 sales by similarly rated entities. deployed in green and sustainable projects.