India's first perpetual bond issue since valuation rule tweak sees strong interest

Canara Bank

27/08/2024 11:42

By Dharamraj Dhutia
       MUMBAI, Aug 27 (Reuters) - India's first additional Tier
I perpetual bond issuance after recent rule changes to make them
more appealing was sold at a lower-than-expected coupon,
indicating a revival in demand for such papers, four merchant
bankers said on Tuesday.
    Canara Bank  CNBK.NS  sold perpetual bonds with a call
option at the end of 10 years at a coupon of 8.27% compared to
expectations of 8.30%-8.34%.
    
    KEY CONTEXT
    Additional Tier I perpetual bonds have no pre-defined
maturity date and mature when an issuing bank exercises the call
option.
    Funding through such paper had dropped to 175 billion rupees
in fiscal 2024 from 344 billion rupees the previous year.
    To drum up interest, the Securities and Exchange Board of
India (SEBI) recently allowed mutual funds to value these papers
as per call option, instead of 100-year papers.
    
    WHY IT'S IMPORTANT
    Funding via this route opens up another option for banks to
raise capital, especially as they struggle to raise deposits.
    This was the first such debt issue from any lender this
financial year and paves the way for others, with State Bank of
India  SBI.NS  among at least three set to sell such debt soon.
    
    BY THE NUMBERS
    Canara Bank's perpetual bond issue received bids worth 46.58
billion rupees ($555.24 million), which is over 4.5 times its
base size of 10 billion rupees.
    
    KEY QUOTES
    "There was a good response from investors in Canara Bank
issue, as the full amount was raised and at a reasonably tight
rate of 8.27%. This indicates that there is decent investor
demand for mid-sized issues of AA+ rated perpetual bonds from
AAA-rated issuers," said Shameek Ray, head of debt capital
markets at ICICI Securities Primary Dealership.
    "There was participation from some mutual funds along with
insurers, and Canara Bank also had the early mover advantage
which worked in its favour," a senior merchant banker said
requesting anonymity as he is not authorised to speak to media.
 
 ($1 = 83.8920 Indian rupees)

 (Reporting by Dharamraj Dhutia; additional reporting by Bhakti
Tambe; Editing by Savio D'Souza)
 ((Dharamraj.Dhutia@thomsonreuters.com;))