IDBI talks to ADB to secure guarantees for bonds

Public sector lender IDBI Bank is in talks with Asian Development Bank (ADB) to secure a part-guarantee for its $200-million bond offering.

Executive director Melwyn Rego said ADB may guarantee 60-65 per cent of the bond issue. ADB would charge a fee for giving the guarantee.

Such a guarantee (for principal and interest payments) from the multilateral agency would help secure good rates (it can issue bonds at a low coupon rate). The rating on the instrument would be higher than India’s sovereign rating, Rego said on the sidelines of an event. Fitch has assigned a BBB- rating with a stable outlook to India’s long-term foreign currency.

The issue timing would depend on market conditions.

On the bank’s foreign fund-raising programme, Rego said it had raised about $100 million equivalent through yuan-denominated dim-sum bonds in the third quarter. This was through medium-term notes. It also raised $175 million through foreign currency loans in December.

An increase in spreads in the foreign market and a cut in interest rates on rupee loans in the coming months may reduce the demand for foreign currency loans, Rego said. Secondary market spreads on the Indian paper are currently 475-500 basis points over the relevant treasury paper. The European sovereign bond crisis has pushed the spreads on foreign currency-denominated corporate bonds.