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SBI raises Rs4,000 crore via AT1 bonds

SBI was the first lender to raise capital through offshore AT1 bonds in 2016. The latest issuance by the bank has prompted other lenders like Axis Bank to look at an offshore AT1 bond issue. (Photo: Reuters)Premium
SBI was the first lender to raise capital through offshore AT1 bonds in 2016. The latest issuance by the bank has prompted other lenders like Axis Bank to look at an offshore AT1 bond issue. (Photo: Reuters)

  • While SBI has AAA credit rating from local credit agencies, the AT1 offering is rated AA+, which is the highest rating in the country for such instruments, given their hybrid and high-risk nature

MUMBAI: The country’s largest lender State Bank of India (SBI) on Wednesday said it has raised Rs4,000 crore via additional Tier 1 bonds at a coupon rate of 7.72%, the first such issuance in the domestic market after the Securities and Exchange Board of India issued new rules. 

In a press release, SBI said it received bids in excess of Rs10,000 crore against a base issue size of Rs1,000 crore.

AT1 bonds, also called perpetual bonds, carry no maturity date but have a call option. The issuer of such bonds may call or redeem the bonds if it is getting money at a cheaper rate, especially when interest rates are falling.

While SBI has AAA credit rating from local credit agencies, the AT1 offering is rated AA+, which is the highest rating in the country for such instruments, given their hybrid and high-risk nature.

SBI was the first lender to raise capital through offshore AT1 bonds in 2016. The latest issuance by the bank has prompted other lenders like Axis Bank to look at an offshore AT1 bond issue to raise as much as $1 billion. Axis Bank will use the proceeds for green and social projects. The bank has set an initial price guidance of 4.4% for the bonds.

Axis Bank is the second Indian lender this year to tap overseas debt markets to raise funds through AT1 bonds. HDFC Bank recently raised $1 billion.

In March this year, SEBI amended a 100-year valuation rule for perpetual bonds. It said deemed residual maturity of Basel III additional tier-1 (AT-1) bonds will be 10 years until 31 March, 2022. It also mentioned that the period will be increased to 20 and 30 years over the subsequent six-month period. From April 2023 onwards, the residual maturity of AT-1 bonds will become 100 years from the date of issuance of the bond. Residual maturity is the time pending for the bond’s maturity.

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