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SBI to raise up to Rs 4,000 crore via AT1 bonds

SBI to raise up to Rs 4,000 crore via AT1 bonds

29 Aug 2021

Mumbai: State Bank of India is set to raise up to Rs 4,000 crore selling Additional Tier 1 (AT1) bonds this week, the first such sale by a lender in the local market this fiscal year, two people with direct knowledge of the matter said.

The sale by the nation’s largest lender could breathe life into a market that was almost dead after the Securities and Exchange Board of India earlier this year changed the valuation rules for AT1 bonds — the rules were, however, partially eased later. The SBI bond issue may prompt other government-owned lenders to tap the local market instead of going global like private sector rivals HDFC Bank and Axis Bank.

SBI is targeting to raise a minimum of Rs 1,000 crore with an option to retain up to Rs 4,000 crore in case of oversubscription, the people said.

Those bonds are expected to be up for bidding on Wednesday on the electronic debt bidding platform of stock exchanges, market sources said. The quasi-equity securities may offer between 7.90% and 8.10% with a five-year call option, which allows investors an exit route.

AT1, or perpetual bonds, do not have any fixed maturity.

“After five years, every year there will be a call option,” said one of the sources. The bonds are compliant with Basel-III, an international capital standard.

SBI Capital Markets is helping the bank raise the money. It has reached out to several local investors including private banks, corporate treasuries, bond houses, retirement bodies, wealth managers and insurers.

“While all institutional investors may be betting on the bank’s sovereign backing, wealth managers could well sell those to their wealthy yield-hungry clients,” said a senior executive, who has been approached by SBI Cap.

State Bank of India and SBI Capital Markets did not immediately respond to ET’s queries sent Sunday evening.

AT1 bonds are billed as quasi-equity securities that bear higher risk of capital losses. These are generally rated three-to-four notches lower than an issuer’s corporate credit rating.

Local rating firms Crisil and India Ratings have graded the SBI’s paper AA-plus with a stable outlook.

“The ratings also factor in the continued strong support that the bank is likely to receive from its majority owner, Government of India (GoI), both on an ongoing basis and in the event of distress,” Crisil said in a note.

SBI on a standalone basis had adequate capitalisation, indicated by tier-I and overall capital adequacy ratios (under Basel III) of 11.32% and 13.66%, respectively, as on June 30, 2021 compared with 11.44% and 13.74%, respectively, as on March 31, 2021, show data from Crisil.

Mutual funds, once major buyers of such AT1 bonds, are lukewarm about this asset class after the banking regulator last year ordered that these instruments be written off in Yes Bank’s state-sponsored bailout. Also, on March 10, Sebi had ordered mutual funds to cap ownership of bonds with special features at 10% of the assets of a scheme and value them as 100-year instruments from next month, potentially triggering a redemption wave. Later, the capital markets regulator eased valuation rules but with some riders after the finance ministry asked it to withdraw the directive to mutual funds.

Perpetual bond sales by banks nearly halved to Rs 18,772 crore in FY21 from Rs 34,860 crore three years earlier, data compiled by JM Financial showed. This financial year, AT1 bond sales could not gain any traction.