SBI raises Rs 3,800 crore via perpetual bond sale

Capital adequacy at 13.59 per cent was higher than required as of September.

SBI raises Rs 3,800 crore via perpetual bond sale
Mumbai: State Bank of India (SBI), the country’s biggest mass-lender, has raised Rs 3,800 crore by selling perpetual bonds to several institutional investors, such as mutual funds, insurance companies and pension funds.

The money raised will augment the bank’s Tier I capital ratio, likely easing pressure on the lender to raise cash soon through a qualified institutional placement (QIP).

“We have raised Rs 3,800 crore Wednesday at 8.50 per cent yield, which is lower than the 8.75 per cent we paid earlier this year. With this capital raising, we have used the amount of Tier I capital we can raise this fiscal and also improved our capital adequacy to levels higher than what is needed by April 2020,” said a senior official at the Mumbai-based lender.

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HDFC Mutual Fund is said to have bought a large amount of these bonds that are rated AAA/ Stable by Crisil. Nippon India Mutual Fund, Aditya Birla Mutual Fund, Edelweiss Mutual Fund and ICICI Primary Dealership were among the buyers, people familiar with the deal said. Individual investors could not be contacted immediately for their comment. According to Basel III capital norms, the systemically important SBI needs to maintain a capital adequacy of 12.10 per cent, which includes 8.60 per cent of common equity, 1.5 per cent of Tier I bonds like the perpetual debt raised by the bank on Wednesday and 2 per cent of Tier II bonds. Capital adequacy at 13.59 per cent was higher than required as of September.

“With this sale, our capital adequacy improves further to 14 per cent, which means we are more than 150 basis points above what is required by April 2020. This is a cost-effective way of raising capital compared to equity. We expect internal accruals to also add to capital; so there is no urgent need to dilute equity as of now,” the official cited above said.

Earlier this year, the bank had mandated Bank of America Merrill Lynch, CLSA, Kotak Mahindra Capital, and SBI Capital Markets to raise what was touted to be the largest QIP at about Rs 18,000 crore. However, the bank’s shares have fallen from a peak of Rs 372 apiece in July to Rs 329 on Wednesday.
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“This bond sale now means that the QIP may not be pursued with urgency as the bank can wait for the next few months as valuations are not at the best,” said a banker involved with the issue.
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