To refinance foreign debt, ICICI Bank now takes exchange route

ICICI Bank, India’s largest private sector lender, has lined up an exchange offer for its lower Tier-II bonds, worth $90 million. The bonds were issued by its UK subsidiary in 2006 and are callable this year. The bank would reissue the seven per cent, non-callable lower Tier-II bonds maturing in 2020 to investors interested in the offer.

“Issuers usually take this route to manage repayment in the overseas debt market. It helps them postpone the redemption to a later date, without stepping up the coupon rate,” said a bond dealer with a foreign bank.

Standard Chartered Bank, in a research note, said this was a capital management exercise to allow the bank to maintain an extra capital buffer, as raising lower Tier-II bonds would become more expensive in January 2013, once Basel III loss-absorption requirements are introduced.

The bank would have to raise the coupon rate if it does not exercise the call option. The coupon would range between 150-250 basis points above the London interbank offered rate, depending upon the series of the bonds. This makes the rates offered on the exchange more lucrative to investors.

However, ICICI Bank would not call the bonds if these are not exchanged. “This implies all investors would have to tender the old bonds or face coupon stepdowns if they do not accept the exchange offer,” said Standard Chartered Bank.