SBI raises Rs 4,000 cr through additional tier 1 bonds

Mumbai: The country's largest lender State Bank of India (SBI) on Wednesday said it has raised Rs 4,000 crore through the issuance of Basel III compliant debt instruments.

The Committee of Directors for Capital Raising at its meeting on Wednesday accorded approval to allot 40,000 Basel III compliant additional tier 1 bonds (AT1) aggregating to Rs 4,000 crore to bond subscribers on September 9, 2020, SBI said in a regulatory filing.

The bonds bear a coupon rate of 7.74 per cent.

This is the lowest pricing ever offered on such debt, issued by any bank since the country started implementing the stringent Basel III capital rules in 2013, the lender said.

"The overwhelming success of this issuance reaffirms State Bank's paper as gold standard and showcases the investor interest for such quality papers. The apprehensions that prevailed in the market post Yes Bank AT 1 write down in March 2020 have been firmly put behind," the bank's deputy managing director (finance) Swaminathan J said in the release.

The interest payout on such bonds is better than the cost of equity for the banks and it provides a good risk-adjusted return to the investors, hence offers a win-win situation for both the banks and the investors, he said.

As the aggregate bids were in excess of Rs 6,000 crore, the bank exercised the full greenshoe option of Rs 3,000 crore over and above the base issue size of Rs 1,000 crore.

A greenshoe option means an over-allotment option. It is a provision in an underwriting agreement which grants the underwriter the right to sell investors more shares than initially planned by the issuer if the demand is higher than expected.

While SBI has AAA credit rating from local credit agencies, its AT1 offering is rated AA+, which is the highest rating in the country for these instruments in view of the hybrid and high-risk nature of these instruments.

While the AT 1 instrument is perpetual in nature, it can be called back by the lender after five years or any anniversary date thereafter, the release said.

Last month, the bank issued tier 2 bonds aggregating to Rs 8,931 crore, at 6.80 per cent.

Both the issuances were solely managed by SBI Capital Markets Ltd.