SBI Plans To Raise $2 Billion In FY24 Via Overseas Bond.

SBI, India’s largest government-owned entity by market capitalisation, announced this week that it expects to raise $2 billion through overseas bond sales in FY24. They will be dwarfing last year’s international fund-raises by private-sector trios, including HDFC Bank. Long-term requirements will be funded in single or many tranches.

SBI’s BODs will meet on April 18 to discuss raising funds through the issue of senior unsecured notes. SBI is expected to sell these bonds in multiple tranches to foreign investors. The products may be priced in any currency, which can comprise USD, even as worldwide talks over the US’s future interest-rate trajectory and the expected path of the world’s reserve currency during a year of moderate worldwide development at best heat up.

SBI, which constitutes almost 1/5th of all bank loans in India, told the stock exchange that it is going to evaluate the situation and decide on a long-term fundraising strategy, which could include an IPO or private placement of senior unsecured notes in the US dollars or other convertible foreign currencies under the Regulation defined as S/144A. This rule allows non-US corporations to deliver securities to investors in the US and other markets without registering with the SEC (Securities and Exchange Commission).

According to debt-market experts,  HDFC Bank, ICICI Bank, and Axis Bank, the largest private-sector trios, typically issue offshore bonds worth $1 billion or less every financial year. No private sector lender’s bond issuances exceeded a billion dollars in FY23.

Earlier fundraising by SBI.

In February 2023, SBI raised Rs 3,717 crore through its third Basel III complaint by presenting an Additional Tier 1 bond with an interest rate of 8.25%. These bonds’ earnings are expected to be utilised to increase the bank’s total capital base and raise its capital adequacy ratio. SBI issued its third Tier 1 bond in the earlier fiscal year. The term of these bonds is perpetual, with a call option after ten years and on each anniversary after that.

Investors accepted the Additional Tier 1 bond offer because they showed a good response, with bids totalling 4,537 crores and oversubscribed by around 2.27 times —- compared to the base issue of 2,000 crores. The investors included provident and pension funds and insurance companies. Based on the response, SBI decided to take 3,717 crores at an annual coupon rate of 8.25%.

Bond sales in US dollars.

In February 2023, the largest government lender raised one of Asia-Pacific’s largest syndicated social loans, raising more than USD1 billion. This contract incorporates a $500 mn initial issuance and an extra $500 million through a greenshoe option. For the first time, the largest government bank funded a social loan for forward lending to green solutions, with the loan book closing on February 24.

To be sure, US dollar bond sales are resuming after a spike in the US Treasury benchmark led global issuances to dry up. Late in February, the electricity ministry-owned REC raised $750 million at a rate of 5.659%, or T+212.5 bps (basis points), indicating that SBI, which also has quasi-sovereign status, may be able to achieve better pricing despite the increase in rates outside. A bps is equivalent to a 0.01 %age point.

The 2-year Treasury bond yield in the United States is now at 4%, while the 10-year yield is 3.426%. Notwithstanding the global bond market’s volatility, SBI is probably to capitalise on investors’ confidence in bonds issued by strong state-run firms deemed quasi-sovereign from an investing standpoint.

Conclusion.

SBI is yet to announce the date for its fourth-quarter earnings. According to Axis Securities’ preview report, SBI is likely to achieve noteworthy advance growth of 16/5% YoY/QoQ in Q4FY23 and a moderate increase (of 5-7bps) in NIMs to support NII growth. Nevertheless, PPOP growth is expected to continue concrete, underpinned by stable opex ratios. Furthermore, the bank’s credit expenses are expected to stay consistent sequentially, assisting the bottom line.

The firm does not anticipate any significant slippages in the fourth quarter, and asset quality will continue to improve. As a result, the bank is predicted to grow at a solid rate in the fourth quarter of FY23.