State Bank of India is planning to raise Rs 3,000-4,000 crore through the issue of subordinated debt to retail investors. The bond is likely to have a tenure of 5-10 years with an interest rate of about 9%. The retail bond issue may be launched before June.
SBI also intends to raise about Rs 2,000 crore before March 2009 through a private placement of bonds.
SBI was the first bank to raise money through retail bonds. It garnered Rs 1,500 crore in 1994 by offering a floating interest rate pegged at 2% above its highest term deposit rate. The bond issue had a 10-year tenure. It had a put and call option at the end of five years and this was exercised in 1998, when bonds were redeemed. No bank has tapped the retail market since.
Tata Capital mobilised close to Rs 2,500 crore through its retail bond issue against the issue size of Rs 1,500 crore, which included a green-shoe option of Rs 1,000 crore. The success of Tata Capital SBI has been toying with this idea for a while, but the success of Tata
Capital intensified their plans to enter the retail bond market.
Tata Capital, a double A+ rated company, offered 12% of a five year bond, with a three year put and call option. SBI feels that as a government owned entity, it can offer lower rates compared with private counterparts.
SBI officials said, “The bond issue will have to be priced slightly higher than the interest rates that the bank is paying. SBI offers 9% on 1,000 days deposits.
The money raised will be deemed as tier II capital, which in turn will enable the bank to improve its capital adequacy ratio. SBI’s CAR stood at 13.72% as on December 2008. Even as corporate issuers stay away from the bond market, a host of banks are raising money through the private placement route.
Popularity: 26% [?]