1. Bank of India defers perpetual bond issue due to high yield demand

Bank of India defers perpetual bond issue due to high yield demand

Bank of India (BoI) on Tuesday deferred its plans to issue additional tier-1 bonds or perpetual bonds as yields demanded by investors were higher than expectations, sources aware of the matter confirmed with FE.

By: | Mumbai | Published: September 27, 2017 4:00 AM
Bank of India, perpetual bonds, Bond market,  tier-1 bonds, Oriental Bank of Commerce, G-sec yields Additional tier-1 bonds or perpetual bonds do not have a fixed maturity period.

Bank of India (BoI) on Tuesday deferred its plans to issue additional tier-1 bonds or perpetual bonds as yields demanded by investors were higher than expectations, sources aware of the matter confirmed with FE. Additional tier-1 bonds or perpetual bonds do not have a fixed maturity period. For the same reason, yields on these instruments tend to be a bit higher than that of a conventional non-convertible debentures. These bonds qualify as tier-I capital and boost the capital adequacy ratio of banks “The lowest bid received by BoI stood at 11.5%. The bank then decided not to go ahead with its perpetual issue. We believe that the bank might have expected a yield close to 10.5-10.75%,” said a bond dealer. Bond market participants pointed out that the recent bout of volatility in the market has hardened yields.

“G-sec yields are rising and the appetite for perpetual bonds seems to be a bit subdued. Banks are also not in a hurry to issue bonds under current market conditions,” said a bond arranger. The benchmark yield rose five basis points on Tuesday to end at 6.67%. Bank of India could not be immediately contacted to confirm the story. This is not the first time that a perpetual bond issue has been deferred. Recently, Oriental Bank of Commerce had cancelled its perpetual bond issue due to higher pricing demand from investors.

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