The State Bank of India (SBI), the country’s largest lender, has achieved a milestone by securing Rs. 5,000 crores through its second Basel III compliant Additional Tier 1 (AT1) bond issue for the current financial year. This move is pivotal for SBI in diversifying and ensuring long-term non-equity regulatory capital. Let’s delve into the details of this significant financial development.
Bond Details and Terms
The AT1 bonds come with a perpetual tenor, featuring a call option after ten years and on each subsequent anniversary. SBI accepted Rs. 5,000 crores at a coupon rate of 8.34%, payable annually. The bonds received a favorable rating of AA+ with a stable outlook from CRISIL and ICRA.
Investor Response and Oversubscription
The market response to the bond issue was overwhelming, with 108 bids totaling Rs. 5,294 crores. This oversubscription amounted to approximately 2.65 times the base issue size of Rs. 2,000 crores. Notably, the investors represented a diverse group, including mutual funds, provident and pension funds, banks, and insurance companies.
Chairman’s Perspective
Dinesh Khara, Chairman of SBI, emphasized the trust that investors placed in the bank despite the challenges associated with AT1 bonds. He acknowledged the tight pricing and diverse investor base, highlighting the significance of this successful endeavor.
Significance of the Issue
This AT1 bond issuance holds paramount importance for SBI as it solidifies the bank’s efforts to secure long-term non-equity regulatory capital. The successful diversification reflects the resilience and stability of SBI in the financial market.
Investor Wariness and Historical Context
Investors had become cautious about AT1 bonds, considering the full write-off of Yes Bank’s AT1 bonds during the bank’s restructuring in 2020. However, SBI’s strategic approach and sound financial management have contributed to the positive sentiment surrounding its recent bond offerings.
Previous Bond Offerings
In July 2023, SBI raised Rs. 3,101 crores through AT1 bonds, retaining only a portion against the issue size of Rs. 10,000 crores. The bonds were priced at 8.1%, reflecting a 91 basis points premium over the prevailing yield on the 10-year benchmark government security. Subsequently, the bank issued two tranches of infrastructure bonds worth Rs. 10,000 crores each, along with a tier-2 bond worth Rs. 10,000 crores.
Pricing Comparison
The current AT1 bond issue is priced at a coupon rate nearly 115 basis points higher than the prevailing yield on 10-year government securities. This pricing strategy reflects the bank’s careful consideration of market conditions and investor expectations.
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