State Bank of India's perpetual bond demand seen spurring more issuances, bankers say

MUMBAI: Strong demand for India’s largest state-run lender’s perpetual bond issue is expected to encourage similar offerings from other banks, four merchant bankers said on Friday.

Several banks also have outstanding perpetual bonds with call options due this financial year, which could prompt them to raise fresh perpetual debt, they said.

Perpetual bonds are debt securities that do not have a maturity date. Most such issues give investors an exit via call options, most commonly after end of five years.

Earlier this week, State Bank of India raised 46.91 billion rupees ($492 million), through sale of Basel III compliant additional Tier I perpetual bonds, with a call option at end of five years.

“A successful SBI issuance could provide an important pricing benchmark and encourage other banks to evaluate AT-1 issuances during the year,” said Saurav Ghosh, co-founder of Jiraaf, an online debt trading platform.

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Banks are likely to continue strengthening their capital buffers to support credit growth and balance-sheet expansion, he said.

SBI will pay an annual coupon of 7.75% to the investors and drew bids worth over 60 billion rupees with provident funds, pension funds, mutual funds and some lenders subscribing to the securities.

“SBI’s cut-off broadly reflects prevailing market expectations and indicates that institutional demand remained resilient across investor segments despite heightened market volatility,” said Venkatakrishnan Srinivasan, founder and managing partner of debt advisory firm Rockfort Fincap.

Five large state-run banks including SBI have call option due for perpetual bonds worth 307 billion rupees over the next eight months of this fiscal.

SBI has 140 billion rupees in bonds due for a call option, while Union Bank of India and Canara Bank will offer an exit to investors on debt worth 60 billion rupees and 40 billion rupees respectively.

Punjab National Bank and Bank of Baroda also have perpetual bonds worth an aggregate of around 67 billion rupees, for which the call options are due later this year.