IOB board approves MTN programme worth $2 bn

State-run Indian Overseas Bank (IOB) has approved a new medium-term notes (MTN) programme worth $2 billion (around Rs 10,830 crore). “The approval came last month from the board,” A D M Chavali, executive director, IOB, told Business Standard.

This is the second MTN programme of the bank. The last programme, worth $1 billion, was concluded in 2012, where $500 million was raised each time in 2011 and 2012. MTN is a form of debt and it is used by banks to ensure constant cash flows. In the past, the funds raised by way of MTN were used for the bank’s Singapore and Hong Kong branch operations. “The annual plans for the next financial year will be finalised by the end of this month based on which we will decide about our fund raising. It is also likely that the new MTN programme will span even in 2014-15,” said Chavali.

However, Chavali added there was a possibility that the bonds might even be raised in currencies like Singapore dollar or Swiss franc and not necessarily in American dollar. “What’s important for me is that I should be able to generate a net interest margin of 150-200 basis points over the cost of the MTN,” said Chavali.

The bank has international branches in Colombo, Hong Kong, Seoul, Singapore and Bangkok. In 2013, among banks, EXIM raised $750 million, HDFC $500 million and ICICI raised Singapore dollar 225 million.

Global rating agency Standard & Poor’s (S&P) rates India’s sovereign rating at “BBB-minus” which is considered lowest investment grade by market participants.

But despite that, in 2013, Indian corporates (including banks) have already managed to raise about $4 billion by way of international bond issuances.

Falling treasury yields in the international market and widening of the investor base are considered the main factors for the success of fund-raising plans of Indian companies issuing international bonds.

Issue arrangers are of the view that in 2013, Indian companies (including banks) will raise at least another $10 billion by issuing international bonds.

MISSION MTN

• It is the bank’s second medium-term notes (MTN) programme
• A sum of $500 million was raised each time in 2011 and 2012
• Funds raised via MTN used for Singapore and Hong Kong branch operations
• There is a possibility the bonds may even be raised in Singapore dollar or Swiss franc and not necessarily in American dollar