SBI Launches Perpetual Bond Issue

State Bank of India launched its dollar-denominatedperpetual bond issue on Wednesday, said two people familiar with thetransaction.

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

The bank is looking to raise a minimum of $500 millionfrom the issue but may go up to $1 billion if there is strong demand, said thefirst 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 AT1bonds in the overseas markets, they have not succeeded. However, SBI is thestrongest of the Indian state-owned banks, which may help draw investors.

SBI had a tier-1 capital ratio of 10.82 percent as of June2016 and a common equity tier-1 ratio of 10.71 percent.  The Reserve Bank of India mandates a minimumregulatory requirement of 8 percent by the end of fiscal year 2019.

A successful fund raise by SBI could also allow otherbanks to test the market. Indian banks need nearly $90 billion incapital 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 adequacyratio of 9 percent under Basel-III norms. They are also needed to maintain aminimum tier-1 capital adequacy ratio of 7 percent. AT1 bonds are raised tocontribute to this tier-1 capital.

Also Read: Indian Banks Run The Risk Of Breaching Capital Trigger: Fitch Ratings

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