SBI Launches Perpetual Bond Issue

State Bank of India launched its dollar-denominated perpetual bond issue on Wednesday, said two people familiar with the transaction.

This is the first additional tier-1 (AT1) bond issue from an Indian lender in the overseas market and is expected to test investor interest for such a paper.

The bank is looking to raise a minimum of $500 million from the issue but may go up to $1 billion if there is strong demand, said the first person quoted above. The indicative coupon for the issue is 5.5 percent. The issue is likely to close this evening.

Moody’s Investors Service has assigned a B1 (hyb) rating to SBI’s issue, it said in a note this morning.

While other banks like IDBI Bank Ltd. have tried to raise AT1 bonds in the overseas markets, they have not succeeded. However, SBI is the strongest of the Indian state-owned banks, which may help draw investors.

SBI had a tier-1 capital ratio of 10.82 percent as of June 2016 and a common equity tier-1 ratio of 10.71 percent.  The Reserve Bank of India mandates a minimum regulatory requirement of 8 percent by the end of fiscal year 2019.

A successful fund raise by SBI could also allow other banks to test the market. Indian banks need nearly $90 billion in capital by 2019, rating agency Fitch highlighted in a report earlier this week. A large part of this will need to come from AT1 securities.

Banks are required to have a minimum capital adequacy ratio of 9 percent under Basel-III norms. They are also needed to maintain a minimum tier-1 capital adequacy ratio of 7 percent. AT1 bonds are raised to contribute to this tier-1 capital.