The last quarter of 2014 is set to witness quite a few issuances of perpetual bonds from banks, according to some arrangers. Perpetual bonds have no maturity date.
Bank of Baroda (BoB) is expected to raise R1,500 crore through Basel-III-compliant additional tier-I (AT-I) perpetual bonds, according to an industry expert. A source said BoB wished to price the bond at 9.25-9.30%, but investors had bid 9.45% last week.
Even if BoB manages to issue the bonds at 9.45%, it would be one of the lowest yields payable for a perpetual bond over the past year, according to an industry expert.
The 10-year government bond yield was at 7.88% where as the average bond yield for 10-year AAA-rated Indian corporate bonds was at 8.55%.
The yield for perpetual bonds is typically higher than that of its limited-tenure peers as a way of offering premium for holding non-redeemable bonds.
Bank of Maharashtra may also tap the bond markets to raise R1,000 crore via Basel-III-compliant additional Tier-I (AT-I) perpetual bonds at a coupon rate of 9.45%, according to a leading bond arranger.
Vijaya Bank, Allahabad Bank and Syndicate bank are also expected to raise between R500 crore and R1,000 crore via the same category of bonds.
Public sector banks tap the markets for meeting their capital adequacy towards the end of the quarter.
Moreover, with corporate bond yields at one of the lowest points over the last one year, it becomes an attractive time to raise funds through the bond markets.
“People are very confident that the Reserve Bank will cut interest rates this policy,” said Ashish Jalan, assistant vice-president, SPA Securities.
By Bhavik Nair