By Dharamraj Dhutia and Khushi Malhotra
MUMBAI (Reuters) -Aggressive pricing on bonds issued by India’s largest lender is spurring state-run peers to plan similar debt issuances worth around $1 billion in the coming weeks, four merchant bankers told Reuters on Friday.
Punjab National Bank , Canara Bank , Bank of India , Indian Bank , and Indian Overseas Bank intend to collectively raise about 90 billion rupees ($1.01 billion) through Basel III-compliant Tier II bonds by the end of the year, according to the bankers, who spoke on condition of anonymity as they are not authorized to speak to the media.
None of the state-run lenders responded to Reuters’ emails seeking comment.
Three weeks ago, State Bank of India raised 75 billion rupees through 10-year Tier II bonds at a coupon rate of 6.93%, only 30 basis points above the annualized 10-year government bond yield.
That issuance highlighted the potential for lenders to improve their regulatorily mandated capital adequacy ratios at a relatively low cost.
Investor demand for Tier II bonds from public sector banks is expected to remain robust because “in volatile equity markets, fixed income instruments like bonds become relatively more attractive,” said Vineet Agrawal, co-founder of online trading platform Jiraaf.
“New issuances, when priced right before expected rate cuts, could lock in higher yields today, making these deals even more appealing,” he added.
Some lenders may opt for issuances with a five-year call option to diversify the investor base and appeal to asset managers, bankers said.
“With the rate cut cycle nearing its end, investors are likely to favor spread assets and corporate bonds. Tier II bonds with a 5-year call option offer attractive yields and duration flexibility, making them well-positioned for strong subscription,” said Abhishek Bisen, head of fixed income at Kotak Mahindra Mutual Fund.
Indian Bank and Indian Overseas Bank aim to raise 10 billion rupees each, while Bank of India plans to secure around 30 billion rupees. Punjab National Bank and Canara Bank are targeting 20 billion rupees apiece, they said.
Maturing Tier II bonds are also driving the issuances. Bank of India has bonds worth 30 billion rupees due in December, while Canara Bank faces maturities of 22.50 billion rupees and Indian Bank has a 10 billion rupee maturity scheduled for the same month.
($1 = 88.6950 Indian rupees)
(Reporting by Dharamraj Dhutia and Khushi Malhotra; Editing by Ronojoy Mazumdar)
