State Bank of India to raise up to $1 bn via 5-yr bond

Countries largest lender the State Bank of India (SBI) plans to raise up to $1 billion through five-year bonds, the first overseas bond offerings in the new financial year,  next week to meet foreign currency requirements of Indian companies.

SBI-LogoThe Chairman of State Bank of India Mr. Pratip Chaudhuri said there was a sizeable demand for foreign currency resources. The bank is in the process of raising funds through five-year bonds next week. He also added that this is the appropriate time (when the borrowing costs are low) to raise funds.

State Bank of India has hired six bankers to arrange for the dollar-denominated bond offering. It will issue five-year senior notes through its London branch. The senior notes will be listed on the Singapore Exchange. 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.

Moody’s Investors Service has assigned a Baa2 rating to SBI’s proposed issuance of senior notes. The outlook for the rating is stable. SBI is a dominant player in the Indian banking space with a share of more than 16 per cent of the system’s loans and deposits with a nationwide reach through more than 14,000 branches and 22,000 ATMs. Referring to the bank’s risk profile, the rating agency said SBI has witnessed deterioration in the asset quality (non-performing assets plus restructured loans) over the past 18 months.

SBI’s gross non performing assets (NPAs) have grown from Rs 27,678 crore (end June 2011) to Rs 53,458 crore (December 2012), while the standard restructured loans grew to Rs 23,845 crore (December 2012) from Rs 13,893 crore in June 2011. It has a smaller cushion to absorb losses due to low-provision coverage and lower Tier-I capital relative to other large banks in the emerging markets. The rating incorporates Moody’s assessment of its systemic importance, which is characterised by the SBI’s dominant market position as the largest bank in India, the historical evidence of government support for the bank, and its implicit policy role in financial inclusion, both social and fiscal.

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