Bank of India raises Rs 1,250 crore via perpetual Tier-I bonds

MUMBAI: State-run Bank of India has raised at least Rs 1,250 crore via perpetual Tier-I bonds with a coupon of 11%. The issue opened on July 25.

The lender said it is India’s first Basel-III complaint bond, which has been rated ‘AAA’ by domestic rating company Brickworks.

Perpetual bonds do not offer fixed maturity but the issuer can call back the issue after 10 years. Basel III is a global capital standard for banks.

“This (bond issue) will help us improve our capital adequacy ratio by 60 bps,” V R Iyer, chairperson and managing director of the bank, told ET. “Issue amount of Rs 1,250 crore was fully subscribed on the first day. Greenshoe option opens now.”

The bank’s Basel-III capital adequacy ratio stood at 9.97% as on March 31, 2014.

The issue will also have an oversubscription option of similar amount. It is expected to remain open till August 8, though the lender has collected subscriptions for the full core issue size on the first day. Bank treasuries, provident funds and some mutual funds have subscribed so far.

Axis Bank, Darashaw & Co, ICICI Bank and Trust Investment Advisors are the issue arrangers.

Tier-I perpetual bonds are considered relatively riskier as these are unsecured investments. The securities may be converted to equity if a specific capital requirement falls below 5.5%.

Under the Basel-III regime, Tier-I non-equity capital comprises preference shares and perpetual bonds.

“Due to a relatively higher risk element, the bank has paid a higher coupon. However, a government-owned bank would not go bust in India. This gives confidence to investors,” said a person associated with the issue-building.