SBI, ICICI Bk to raise money via foreign bonds

The hike in interest rates by US and British central banks has not deterred the plans of the country's two largest banks "" ICICI Bank and State Bank of India "" to raise money abroad to fund their foreign expansion.

ICICI Bank plans to raise $300 million through a five-year overseas bond to finance its growth plans in Singapore. The issue is the bank's first offering under its shelf prospectus, which was filed with the Luxembourg Exchange for $1 billion in medium term notes.

The programme has been assigned a Baa3 rating by Moody's and BB/stable by Standard and Poor's.

The country's largest commercial bank, the State Bank of India (SBI), also stated today its plan to raise money through overseas borrowings, but is yet to finalise the amount.

Market sources peg SBI's foreign debt raising exercise at $250-500 million. SBI has earlier mentioned its plans to buy a mid-sized bank overseas.

In May, SBI borrowed $250 million through a one-year overseas loan at 32 basis points over the London Inter-bank Offered Rate (Libor). ICICI Bank sold a $300 million, five-year bond in October 2003 at a spread of 106 basis points over Libor.

Indian corporates have jumped onto the ECB bandwagon to raise foreign debt. This is even as overseas interest rates are on the rise as central banks have hiked their respective bank rates. The 6-month Libor has risen to 1.88 per cent from 1.2 per cent couple of months earlier. Merchant bankers estimate overseas commercial borrowings to rise by 300 to 400 per cent by the end of December to $6.5-7 billion.

This follows greater appetite for large-sized funding at a time when domestic investors prefer to sit on the fence as they try to take a call on the interest rate scenario.