BoI mulls buyback of overseas Tier-II bonds

Bank of India (BoI) is planning to buy back part of $240-million upper Tier-II bonds to save on servicing debt capital.

The Mumbai-based public sector bank had raised capital (Tier-II bonds) overseas in 2006 under Medium Term Note (MTN) programme. “These bonds are now traded at a discount. This gives us an opportunity to buy back at a lower price. It also reduces the cost of servicing the capital,” a senior BoI official said.

These bonds carry a coupon (interest rate) of 6.62 per cent and are due for redemption in 2021.

A banking analyst with a domestic brokerage said while the capital would be reduced to extent of the buyback, it would also improve efficiency (prudent use of existing capital to support asset base).

The global financial crisis has impacted the growth of overseas business in 2008-09. Most of Indian banks have seen either a sharp fall or contraction in the growth of their overseas advances and assets.

Until the middle of 2008, Indian companies scaled up their overseas business through organic expansion and mergers and acquisitions. This growth was substantially funded by Indian banks like State Bank of India, ICICI Bank, Bank of Baroda, Bank of India and Axis Bank which have international branches.

Post Lehman Brothers collapse in September 2008, Indian companies slowed down their plans for overseas expansion through organic route as well as mergers and acquisitions. The BoI official said any reduction in the capital due to buy back of Tier-II bonds would not impact capital adequacy, which was healthy at 13.01 per cent at end of March 2009.

The pace of growth in the bank’s overseas book in 2009-10 hinges on the recovery in the developed markets and liquidity in the global financial markets for accessing funds, he added.