MUMBAI: State Bank of India, the country’s largest lender, has entered the international debt market to raise up to $1 billion through a dollar bond issue. The move follows India’s recent sovereign rating upgrade by S&P to BBB with a stable outlook—the first such upgrade in 18 years from its earlier BBB-—which was accompanied by an upgrade to SBI’s own rating.
The bank is issuing dollar-denominated bonds maturing in five years, and is looking at mopping up at least $500 million and if the response and pricing is good, the issue, which is part of the bank’s $10 billion medium term note programme, may touch $1 billion, a merchant banker working on the issue told The New Indian Express Tuesday.
The debt fund raising comes even as the bank is sitting on lendable liquidity worth Rs 12 trillion, a good portion of which is the excess holding in government securities, the chairman CS Setty had told this paper recently. He had also said the bank has a board mandate to raise Rs 20,000 crore in domestic debt this fiscal.
This fund raising also assumes importance as the bank with a Rs 67 trillion balance-sheet, had already raised Rs 25,000 crore in a QIP issue in late July, making it the single largest fund raising through this mode, even as its corporate loan book has been seeing muted growth as corporates, which are sitting on a cash balance of Rs 13.5 trillion as they are not investing to add capacity instead deleveraging and even paying back loans earlier than maturity.
In the June quarter, the bank’s gross advances rose 11.61% to Rs 42.55 trillion driven by personal loans which grew 12.56%, SME loans grew 19.10%, agricultural loans up 12.67%, and corporate loans which was muted at 5.70%.
Chairman Setty had expressed confidence in retaining the credit growth target set in April at 12% for the fiscal as he expected more corporates to take disbursement of loan actions which stood at Rs 3.89 trillion and while disbursement in the quarter stood at Rs 3.41 trillion. The bank was the most profitable company in the quarter with a whopping Rs 19160 crore in net income.
The second quarter will be much better given the nearly Rs 10,000 crore the bank will ne netting from the 13.5% stake sale in Yes Bank which is around 110% of its investment made in March 2020 when it the RBI asked the bank to pick up 50% in the private lender as part of its rescue.
Similarly deposits increased 11.66% to Rs 54.73 trillion, with current account deposits jumping 30.69% and savings deposits rising 4.71% helping the bank improve the low-cost Casa ratio to 39.36 sequentially but marginally lower than 40.70 a year ago.
The bank had raised Rs 7,500 last September through 15-year tier II bonds, with a call option at the end of 10th year. In the previous financial year, it had raised Rs 15,000 crore through tier II bonds.
The bank is doing the roadshows and is seeking bids from the international investors, excluding the resident Americans (as this is a regulation S issue which cannot be sold to resident American investors) and will finalise the pricing and the quantum later this week, the banker said, adding “we’ve already seen a very strong investor interest, and expect a finer pricing than previous issue".
While SBI did not reply to TNIE seeking comment, the investment bankers requested anonymity as he is not authorised to speak to the media.
SBI has given an initial guidance of US treasury yield plus a spread of 105 bps, but the banker feels the final pricing will be under 100 bps as the issue has strong demand already.
Last November, SBI had raised $500 million through five-year dollar bonds at a yield of 5.13%, which was at a spread of 82 bps over the US Treasury yield with similar maturity, the tightest spread achieved by the lender, according to the banker.
In a note issued from Singapore, S&P said Tuesday it has assigned the senior unsecured notes BBB rating (BBB- is the lowest investment grade rating below which rating it’s junk), which is in line with the issuer's ratings as well as that of the sovereign. Last month, the rating agency had upgraded the long-term sovereign credit rating to 'BBB' from 'BBB-' and so it did the rating of the bank. Typically, government-owned entities are not rated above the sovereign if at all have a better rating metrics debt profile.
S&P said the bank is issuing the senior unsecured notes through its London branch. The issuance is a drawdown from SBI's $10-billion medium-term notes programme, it added.
“The BBB rating on the notes is equal to the long-term issuer credit rating of SBI (BBB/stable/A-2). Our ratings on SBI reflect the bank's dominant market position and strong deposit franchise. SBI's market leadership and the country’s good economic growth momentum support its loan growth, asset quality, and profitability.
“The proposed notes will constitute direct, unconditional, unsecured, and unsubordinated obligations of SBI and shall at all times rank equally with all of the bank's other unsecured obligations,” S&P said.