Centre Clears Sbi Resurgent Bond Structure'

State Bank of India (SBI) has received formal approval from the central government on the proposed structure of the India Resurgent Bonds. However, SBI has sought some clarifications from the government, which has delayed the announcement of details of the bond issue.

According to senior SBI officials, the government on Friday cleared the structure of India Resurgent Bond that SBI had forwarded to them.

The India Resurgent Bond will aim at raising an amount slightly over $ 2 billion in three currencies - pound sterling, US dollar and deutsche mark.

The bond will have a tenure of five years and investors will get the option of interest payment either semi-annually or on a cumulative basis. Sources said the coupon for the three currencies has not yet been decided and will finalised only a few days prior to the launch. Tentatively, the coupon would 200 to 250 basis points over the US treasury in the case of dollar bonds and 250 to 300 basis points over the US treasury bill in the case of pound-denominated bonds. The coupon on the DM bonds will be in the range of 6 - 6.50 per cent.

"Pricing is a sensitive issue especially since developed countries have imposed sanctions followed by a downgrade by Moody's," said sources. "The coupon that SBI fixes will be a benchmark for other corporates and in an environment where the foreign exchange market is so volatile it was decided to fix the coupon just a few days before launching the issue," they added.

Meanwhile, a group headed by V Jankiraman, deputy managing director and chief credit officer at the SBI, has been formed to work out the modalities of the India Resurgent Bond. On foreign exchange risk, a senior SBI officials said, "We expect the government to bear it. Any foreign exchange variation will be passed on to the government."

The issue is slated to open for 45 days and could be extended, as in case of India Development Bond which was open for subscription for almost four months. It would be a promissory note freely transferable by endorsement and delivery between NRIs. Besides, it shall also have a gift tax exemption. Bank of India and Bank of Baroda, which also planned to float the Resurgent Bond have yet not received any green signal from the central government or the Reserve Bank. "This implies that we will be marketing the issue as we did in case of India Development Bond," said senior officials from both banks.