IDBI Bank raises $500 mn through long-term bonds

Despite the developments related to Cyprus, the response to IDBI Bank's bond offering was robust, with the issue getting subscribed five times

The public sector lender IDBI Bank today raised $ 500 million through long term bonds in highly uncertain market marked by Cyprus bailout scare and DMK pulling out of United Progressive Alliance at Centre.

The issue opened for subscription today in the difficult market conditions. The initially, indicative yield for bonds with tenure of five years and 10 months, was US treasury plus 315 basis points. Finally, it was fixed at T plus 300 basis points.

Maneesh Malhotra, managing director and head of debt finance at HSBC said European markets were in read due to developments relating to Cyprus. Yet, the response to IDBI Bank’s bond offering was robust with subscription five times the issue size.

HSBC and Standard Chartered Bank were arrangers for the offering.

The markets were uncertain on account of risks of bankruptcy in Cyprus, a European Union member. The domestic political developments, withdrawal of support by DMK to UPA government on issue of Tamils in neighbouring Sri Lanka also weighed on market, bond dealers said.

The faith in Indian long term growth story is intact. IDBI Bank is a regular to raise funds from the market. Both are reflected in level of response to offering. About 190 investors placed their bids, Malhotra said.

Moody's Investors Service has assigned a Baa3 rating to proposed issuance of long-term senior unsecured notes under its $ 3.5 billion Medium Term Note program.

Last week another public sector lender Bank of India had raised $ 500 million at Treasury plus 280 basis points. It also received response five times the issue size.

The IDBI’s long-term notes will mature in January 2019. They will be listed on Singapore exchange and issued by Dubai of IDBI Bank. The rating carries stable outlook.

M Rego, Executive director, IDBI Bank said with this issue, public sector lender has raised about $ 2 billion in foreign currency in current financial year. It will be deployed in funding Indian companies.

Moody's has a standalone bank financial strength rating (BFSR) of “D-“ for IDBI Bank, mapping to a baseline credit assessment (BCA) of ba3 on the long-term scale.

The probability of systemic support for IDBI Bank is very high from the Indian government in an event of a systemic crisis. The Indian government has in the past supported Indian public sector banks, including IDBI Bank, through capital (equity) infusion and liquidity support.