IDBI Bank to raise up to $1 bn via overseas bonds

Plans to increase limit on medium-term note programme to $2.5 bn from $1.5 bn in January

IDBI Bank plans to raise between $750 million and $1 billion through sale of foreign-currency-denominated bonds and loans in the current financial year.

The public sector lender had raised $840 million via this route in 2011-12.

The bank will also scale up the limits on the medium-term note (MTN) programme to $2.5 billion from $1.5 billion in January.

"Since we have already utilised almost half of the current MTN limit, we may look at increasing it to at least $2.5 billion in January," said Melwyn Rego, executive director.

Of the current $1.5-billion limit, the bank has already raised $720 million.

 

Under the MTN programme, the issuer has the flexibility of raising funds in tranches on a continuous basis.

About $300 million of the amount to be raised in the current financial year will be in the form of bank loans through bilateral, multilateral or syndicated channels, he added.

The bank will raise funds from overseas markets in small tranches to reduce carrying cost.

The state-run bank today received the proceeds of CHF 110 million from the Swiss franc denominated bonds issued on March 16, 2012. The issue of three-and-half years bond was oversubscribed and carried a coupon rate of 3.125 per cent. Deutsche Bank was the sole manager and book runner to the issue, while investors included private banks and high net-worth individuals. The bonds were issued from the bank's Dubai branch.

Rego said the proceeds of the issue will be used for lending to Indian companies in need of foreign currency loans. "There is an arbitrage as compared to domestic funding even after adding the currency swap rates and other costs." He said the bank is making sure all foreign currency loan borrowers either have natural hedge in the form of revenue from exports or take an appropriate hedge otherwise.

Recent appreciation of the Swiss franc against the dollar has made it an attractive source for funds. The Swiss franc has appreciated 2.64 per cent against the greenback since the start of calendar year 2012.

In February 2012, Rural Electrification Corporation raised funds worth CHF 200 for five years at 305 basis points above the mid-swap rate. Rego said the demand for foreign currency loans from companies is expected to rise, as their foreign currency convertible bonds come for redemption in the later part of the current financial year.