Foreign investors lap up SBI dollar bonds

Other banks, entities prepare to emulate this success, after earlier hesitation due to perceived risk aversion in investor sentiment abroad

The country’s largest lender, State Bank of India (SBI), has raised $1.25 billion from investors abroad at 4.125 per cent, for five years. This was the second largest single tranche bond sale that garnered overwhelming response, despite recent concerns expressed by international credit rating agencies on the country’s economy.

SBI’s dollar-denominated bonds were subscribed 5.4 times. They got $6.8 billion from around 350 accounts spread over Asian, European and US investors. The lead managers to the issue were Deutsche Bank, Citibank, Barclays, Bank of America Merrill Lynch, JP Morgan and UBS.

In 2010, SBI had raised $1 billion for five years at 4.5 per cent.

“This issuance has certainly provided a window of opportunity to other high-quality Indian issuers to tap the international bond markets,” said Rajiv Nayar, head of capital markets origination at Citi India. He said the SBI notes were priced at the lowest ever coupon achieved for an Indian issuer in the US dollar bond market in the five-year tenor.

A number of large Indian banks, both private and government owned, are waiting on the sidelines since April, as they had to hold back plans owing to risk-averse investor sentiments after developments in the Euro zone. “From SBI’s dollar bond pricing, it looks like the interest rates are coming back to normal,” said a senior treasury official from a Mumbai-based public sector bank. “We are closely watching the market for the right opportunity.”

According to market participants, banks looking at fund raising abroad include Indian Overseas Bank, Bank of India, Bank of Baroda, ICICI Bank, Axis Bank and Union Bank of India. Also, there could be issuances from entities other than banks, such as Rural Electrification Corporation (REC), Power Grid Corporation, etc.

“We are looking at raising $500 million for five and a half years through dollar-denominated bonds,” said M Narendra, chairman and managing director, Indian Overseas Bank. He said they’d wait for the right pricing.

REC is aiming to raise $250 million in the first tranche for a period of three years. H D Khunteta, director, finance, said the details would be finalised within a week. The company had raised $750 million through this route last financial year.

“Banks and entities with overseas operations can look at fund raising at this pricing, while it may prove costly for other banks due to high hedging costs,” said a senior official from a brokerage firm.

In April, international ratings agency Standard & Poor’s revised the outlook on India’s long-term credit ratings from stable to negative, followed by similar action by Fitch in June. Moody’s maintained the ‘stable’ outlook. However, all had raised concerns on the country’s high fiscal deficit and slow decision making processes at the government level. The rating outlooks of a number of Indian banks and companies had also been realigned with the change in the sovereign rating outlook.