Indian pension house corners bulk of SBI’s 60.5-billion-rupee bond sale, bankers say

MUMBAI: India’s largest pension fund has scooped up a bulk of State Bank of India’s bond sale on Tuesday, three bankers aware of the matter said, as the body scrambles to deploy funds before the end of the financial year on March 31.

State Bank of India raised 60.51 billion rupees ($655.05 million), after getting bids of around 99 billion rupees, through 10-year bonds, at an annual coupon of 7.05%. The issue has a call option at the end of five years, which allows the public sector bank to redeem them before maturity.

The Employees Provident Fund Organisation (EPFO) bought at least 50 billion rupees of the issue, which allowed SBI to close the issue at cheaper levels, the bankers added.

The bonds SBI issued are used by banks to strengthen their Tier II capital, a component of the regulatory capital required under Basel III framework implemented by the Reserve Bank of India.

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SBI and EPFO did not immediately respond to Reuters’ request for comment, while the bankers declined to be identified as they are not authorised to speak to the media.

Achieving a cut-off coupon of 7.05% for subordinated, unsecured Tier II bond reflects not only the depth of demand but also the pricing strength that high-quality issuers like SBI continue to command, said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap.

SBI earlier raised 75 billion rupees through 10-year Tier-II bonds at a coupon rate of 6.93% in October.

Tuesday’s coupon was around 20 basis points above the annualised 10-year benchmark government bond yield, from 30 bps during the October issue.

“Quality issuers, particularly in infrastructure, financial services and public sector undertaking space, continue to find buyers. The story is more about tactical timing than structural access, and for most well-rated borrowers, that is a manageable situation,” said Nikhil Aggarwal, founder and group CEO of Grip Invest, an online bond trading platform.