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Bank of India is set to raise Rs 2,500 crore via perpetual bonds. The primary issue size is Rs 1,250 crore, with a greenshoe option (to have an additional size of an equal amount). The tenure of the bonds is 10 years, with a call option at the end of the 10th year. The coupon rate of these bonds has been set at 11 per cent. These are Basel-III compliant bonds.
"In this type of bonds at the point of non-viability, banks may have to write off capital and a part of the perpetual capital. In the event of problems in the bank, the coupon will not be paid and the principal haircut is also applicable. Due to this reason, these bonds are issued at a higher coupon compared to other instruments in the similar tenure," said Ajay Manglunia, senior vice-president (fixed income) at Edelweiss Securities.
There are loss-absorption clauses, which make these issues lesser attractive for the investors, due to which there is lower appetite. These issues are made attractive with higher coupon rates.
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Manglunia added that people were waiting for this issue to get subscribed so that others banks can follow. "The attractive coupon may woo investors. Besides, Bank of India is a reputed bank and is likely to be eligible among the systemically important banks, due to which investors may be willing to take these bonds."
The issue arrangers are ICICI Bank, Axis Bank, Darashaw, and Trust Capital. The issue opened on Friday and the primary issue size, as well as a part of the greenshoe option, has been subscribed, sources said.
