Union Bank of India to raise $500 mn via MTN

Public sector lender Union Bank of India plans to raise $500 million by issuing medium-term notes (MTN) to investors in Singapore, Hong Kong and London. The bank will start road shows for the issue from next week.

Last week, the State Bank of India, the country's largest lender, had said it would raise $1 billion by issuing five-year bonds to investors abroad.

Increasingly, banks and companies are looking at raising funds abroad, which works to be cheaper than raising them in India.

Union Bank will use the proceeds from MTN to fund its international operations. According to the bank's chairman and managing director D Sarkar, there is high demand from foreign borrowers, specially in West Asia.

In March, the bank had opened a branch in Dubai International Financial Centre (DIFC), which is the lender's second foreign branch. The other overseas branch of the bank is at Hong Kong.

According to Bloomberg data, Indian companies sold $6.3 billion of bonds abroad in the three months ended March 31, almost triple that of the previous quarter. The average dollar yields for local companies fell 46 basis points (bps) this year and reached as low as 3.81 per cent on March 18, according to HSBC Holdings Plc indices.

With lending rates in India remaining high due to sticky inflation, Indian firms are looking to reduce the cost of funds.

Those with the natural currency hedge through revenues from exports and earnings such as dividends and royalties from abroad are in a position to raise cheap resources. According to bankers, ONGC Videsh and Tata Steel Ltd are also planning to borrow abroad.

Indian banks' appetite for overseas funds also comes at a time when deposit growth has been sluggish for the past two years.

In March 2013, short-term rates, such as three month certificate of deposits, were above 9 per cent, as banks rushed for funds to meet their year-end targets.