The country’s largest lender is expected to formally engage investment banks next week for the proposed issue, which could be scaled up in size depending on the response from investors, said the people cited above.
European, Japanese and American banks are expected to be picked as arrangers for the issue.
“SBI has made primary enquiries with foreign banks to raise around $500 million through the issuance of US dollar-denominated bonds under Reg S/144 A,” said a direct source. “This move comes as the bank looks to raise funds and keep a close eye on the upcoming FOMC (Federal Open Market Committee) meeting scheduled for the first week of May.”
Bond sales back after a pause
SBI got board approval to raise $2 billion through the issue of foreign currency bonds on April 18. It is expected to issue the bonds in tranches over the course of FY24.Indian banks and non-bank financiers have been regularly tapping international markets for their funding needs over the years. However, with global benchmark rates to which the funding costs are tied moving up quite sharply from near zero levels not so long ago, issuers are having to pay proportionately more to raise funds from the international market.Reg S and Rule 144A allow companies to issue securities to investors in the US and other markets without having to register with the Securities and Exchange Commission (SEC). Given SBI’s quasi-sovereign status, the bank can raise senior debt at a rate of 5%, according to people familiar with the matter.
SBI has bonds worth $600 million maturing in September 2023 and bonds worth $800 million maturing in early 2024. While the bank has taken board approval to raise $2 billion in foreign currency bonds, it currently has sufficient liquidity to meet any repayments. In February, SBI raised a syndicated social loan of $1 billion, marking the first time that SBI raised such debt.
There was a brief pause in global bond issuance but bond sales are beginning to open up again with REC and ReNew Power raising funds recently. This week ReNew Power raised $400 million green bond at 8.15%, which was 35 basis points inside of initial price guidance of 8.5%. Earlier, REC raised $750 million at a rate of 5.659%.
However, SBI’s borrowing rate will be comparable to other banks in the region. It is expected that SBI’s pricing will be benchmarked to that of South Korea’s Kookmin Bank, another source said. Kookmin recently raised a five-year bond, at 95 basis points above the five-year US treasury rate.
SBI’s bond pricing will take into consideration its strong reputation and quasi-sovereign status. Sources expect SBI’s bond to be priced at approximately 120-140 basis points above the five-year US treasury rate, which is at 3.62%. The bank may end up paying around 5%, according to the sources.
