SBI to float At-1 bonds in domestic market, will mufual funds buy?, BFSI News, ET BFSI
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After HDFC Bank and Axis Bank successfully raised Additional Tier 1 (AT1) bonds from overseas investors, the State Bank of India is set to test the local market this week with such bonds.
State Bank of India plans to raise up to Rs 4,000 crore selling AT-1 in the local market, first by a lender in this fiscal.
The At-1 market was almost dead after the Securities and Exchange Board of India earlier this year changed the valuation rules, which were partially rolled back later.
If the issue is successful, other lenders may tap the local market rather than the overseas market.
HDFC Bank and Axis Bank have eschewed the local market this year raising funds via the AT1 route in the overseas market.
SBI bonds are expected to be up for bidding on Wednesday on the electronic debt bidding platform of stock exchanges. The bonds 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.
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.
AT1 bonds are billed as quasi-equity securities that bear a 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 AAplus with a stable outlook.
The mutual fund position
Mutual funds, which once used to buy heavily in 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.
The muted response by MFs had prompted the lenders to tap the overseas market
Perpetual bond sales by banks have nearly halved to Rs 18,772 crore in FY21 from Rs 34,860 crore three years earlier.
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