MUMBAI: The nation’s largest lender State Bank of India has said it has closed its foreign debt issue raising $500 million from international debt investors through unsecured fixed rate notes, offering 4.5% to investors in annual reruns.
The issue of unsecured fixed rate notes comes after the nation’s sovereign rating upgrade to BBB with stable outlook by the international rating agency S&P after 18 years holding it at BBB-, which also followed the bank’s own rating upgrade.
In a statement, chairman CS Setty said the bond is benchmarked against the five-year US treasury and the final price spread came in at 75 bps over the benchmark.
“The transaction received an overwhelming response and saw strong interest from investors across geographies with a final order book in excess of $ 1.1 billion across 85 accounts. On the back of strong demand with a peak orderbook of $2 billion, the price guidance was revised from T+105 bps area to T+75 bps,” Setty added.
He further said the successful issuance of $500 million is a testament to the strong appetite for bonds of SBI and to the diversified investor base the bank has in offshore capital markets, allowing it to efficiently raise funds from the leading global fixed income investors.
“The issue is priced at the best ever spreads for a domestic issuer and reflects the confidence of the global investors in our growth story in general and credit quality of the bank in particular. The tight pricing has demonstrated reduction in the borrowing cost for Indian issuers subsequent to the improvement in the credit profile and sovereign rating upgrade,” he concluded.
Given the bank’s strong fundamentals, the final pricing came down significantly to 4.5% (coupon rate) from the initial guidance of 105 bps over the US treasury yields.
Earlier in the day, an investment banker handling the issue told TNIE that the bank was open to raise up to $1 billion depending on the investor interest.
The five-year money, worth $500 million, was raised through the London branch of the bank, SBI said in a late evening exchange filing. The 4.5% fixed rate coupon is payable bi-annually, the statement added without disclosing investor details by sector or geography as well as how good was the subscription.
The issue is part of the nation’s largest bank’s $10 billion medium term note programme.
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 TNIE 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. Corporates, which are sitting on a cash balance of Rs 13.5 trillion, are not investing to add capacity but 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 at 19.10%, and agricultural loans at 12.67%, while growth in corporate loans 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, 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 19,160 crore in net income.
The second quarter will be much better given the nearly Rs 10,000 crore the bank will be netting from the 13.5% stake sale in Yes Bank which is around 110% of its investment made in March 2020 when 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 crore last September through 15-year tier II bonds, with a call option at the end of the 10th year. In the previous financial year, it had raised Rs 15,000 crore through tier II bonds.
The bank held roadshows for international investors in Europe, the US and major Asian cities. But being a Regulation S issue it cannot be sold to resident American investors.
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 had said.