SBI raises Rs 2,100 crore via perpetual bonds at 9% interest rate
Private sector lender Yes Bank has invested the entire sum, two sources with direct knowledge of the matter, told ET. This is the lender’s first Basel III-compliant perpetual fund.
MUMBAI: State Bank of India, India’s largest lender, has raised Rs 2,100 crore through perpetual bonds at 9% interest rate amid fears that perpetual bond-holders may face delay in interest repayments with most state-owned banks posting quarterly losses.
Private sector lender Yes Bank has invested the entire sum, two sources with direct knowledge of the matter, told ET. This is the lender’s first Basel III-compliant perpetual fund. Emails sent to SBI and Yes Bank seeking comments remained unanswered.
Late evening, the bank issued a release to the stock exchanges. “It was a one-on-one deal where SBI Cap was the sole investment banker. It was not on the exchange platform,” said one of the persons cited above.
Perpetual bonds are bonds with no maturity date, and the issuer pays interest on bonds forever. Investors do not have to redeem the principal except on the call date. In this case, SBI has given a five-year call option, which allows the borrower to withdraw the issue from existing investors. But perpetual bonds are seen as quasi-equity instruments.
If an issuer incurs losses, he cannot pay coupons. “With falling interest rates, wealthy investors are chasing these securities, but some are not fully aware of inherent risks,” said a wealth manager, who declined to be identified.
“But SBI, being a top-rated government bank, should find enough buyers as Yes Bank may sell them down over a period of time.”
The bonds are counted as Tier-1 capital and help banks fulfil their capital requirements. Most of these bonds are redeemable by the issuer, but the first call date is never less than five or 10 years from the date of issue. In recent times, banks with lower capital adequacy ratio have been issuing perpetual bonds at rates as high as 11%.
A few weeks ago, SBI said that its committee of directors for capital raising had authorised the bank to raiseRs 11,100 crore worth additional Tier-I (AT-1) capital through issuance of Basel III-compliant perpetual debt instruments.
Private sector lender Yes Bank has invested the entire sum, two sources with direct knowledge of the matter, told ET. This is the lender’s first Basel III-compliant perpetual fund. Emails sent to SBI and Yes Bank seeking comments remained unanswered.
Late evening, the bank issued a release to the stock exchanges. “It was a one-on-one deal where SBI Cap was the sole investment banker. It was not on the exchange platform,” said one of the persons cited above.
Perpetual bonds are bonds with no maturity date, and the issuer pays interest on bonds forever. Investors do not have to redeem the principal except on the call date. In this case, SBI has given a five-year call option, which allows the borrower to withdraw the issue from existing investors. But perpetual bonds are seen as quasi-equity instruments.
If an issuer incurs losses, he cannot pay coupons. “With falling interest rates, wealthy investors are chasing these securities, but some are not fully aware of inherent risks,” said a wealth manager, who declined to be identified.
“But SBI, being a top-rated government bank, should find enough buyers as Yes Bank may sell them down over a period of time.”
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The bonds are counted as Tier-1 capital and help banks fulfil their capital requirements. Most of these bonds are redeemable by the issuer, but the first call date is never less than five or 10 years from the date of issue. In recent times, banks with lower capital adequacy ratio have been issuing perpetual bonds at rates as high as 11%.
A few weeks ago, SBI said that its committee of directors for capital raising had authorised the bank to raiseRs 11,100 crore worth additional Tier-I (AT-1) capital through issuance of Basel III-compliant perpetual debt instruments.
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