Singapore: Bank of Baroda Ltd (BoB), India’s fifth-biggest lender by assets, plans to sell at least $250 million (Rs1,025 crore) of bonds to boost its capital. The subordinated bonds were given a rating of BB, three levels below investment grade, by Fitch Ratings, the credit assessor said in a statement. BoB, in which the Union government has a 53.8% stake, can increase the sale to meet demand, Fitch said.
BoB’s top brass will meet investors in Singapore, Hong Kong and London next week to market the securities, which count as Tier-II capital, one of the forms of capital that regulators require banks to hold to absorb losses, an email sent to investors by one of the arrangers said.
Road map: File photo of BoB chairman and managing director Anil K. Khandelwal (left) with finance minister P.Chidambaram.
Deutsche Bank AG, Citigroup Inc. and Barclays Plc. are arranging the sale.
The bank is seeking to expand its overseas business and meet record credit growth in the world’s second-fastest growing economy, Anil Khandelwal, chairman and managing director of the Mumbai-based BoB, had said in an interview in January.
BoB’s overseas business contributes almost 33% of its profit. The bank, with 2,732 branches across India, has a 4.3% share of deposits in the country, Fitch said.
Bond investors pay a lower price for subordinated debt than regular bonds as recompense for being paid later than other claimants in the event of a bankruptcy.
Fitch also gave the same non-investment grade rating to a hybrid bond that the bank will sell later under its $1.5 billion medium-term note programme. The hybrid securities, which combine both debt and equity characteristics, count as Tier-I capital.
Hybrid bonds carry more investment risk than regular debt because under certain circumstances, the seller can stop paying interest. Loans at BoB rose by 47% in the 12 months ended December, it had said in a statement on 24 January.