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.