State Bank of India on Wednesday raised Rs 4,000 crore through Basel-III compliant Additional Tier -1 (AT-1) bonds, at a coupon rate of 7.72%. This is the first AT-1 Bond issuance in the domestic market post the new regulations of the Securities and Exchange Board of India (Sebi).
“This is the lowest pricing ever offered on such debt, issued by any Indian bank since the implementation of Basel III capital rules in 2013,” a state-owned lender said in a release.
The issue by the state-owned lender got bids worth Rs 10,000 crore, as against Rs 1,000 crore as base issue size and Rs 3,000 crore as retain over-subscription option. This indicated that demand for the bank’s bonds was better than anticipated by the market. The bonds have a pay-in date on September 3.
AT-1 bonds are type of unsecured, perpetual bonds issued by banks to shore up their core capital base to meet the Basel-III norms. The AT1 bond issued by the state-owned lender has a call option on September 3, 2026, or any anniversary date thereafter, subject to tax call or regulatory call. The first coupon payment shall be made on September 3, 2022, and every year thereafter, till the redemption.
In a press release, the bank said it had a AAA credit rating from local credit agencies and the AT-1 offering was rated AA+, which happened to be the highest rating for these instruments in view of their hybrid and high-risk nature.
Before this bond issue, Axis Bank and HDFC Bank had tapped the overseas debt market to raise funds through AT-1 bonds. Recently, HDFC Bank raised around $1 billion from overseas markets.
Earlier this year, Sebi had amended the valuation rule of perpetual bonds. The deemed residual maturity of Basel-III AT-1 bonds would be 10-year until March 31, 2022. The market regulator also said from April to September 2022, it would be valid at 20 years and from October 2022 to March 2023, it would have a life span of 30 years. From April 2023, the residual maturity will be 100-year from the date of issuance of the bond.