SBI to offer 15-year retail bonds at 9.95%

Source :MUMBAI: TNN, Feb 15, 2011, 12.44am IST


State Bank of India will sell bonds to retail investors offering returns of 9.75% and 9.95% on 10- and 15-year bonds, respectively.

In a letter to the Bombay Stock Exchange, the bank said its central board has approved raising funds through the issue of subordinated debt (lower tier II bonds). It has approved selling bonds worth Rs 1,000 crore, with an option to retain oversubscription of up to Rs 1,000 crore. In case of retail demand, SBI can retain the oversubscription beyond Rs 2,000 crore up to Rs 10,000 crore.

This time around the bank is offering different rates for retail and non-retail investors. Non-retail investors, who include institutions and high net-worth individuals who invest in bulk, will receive 9.3% for 10 years and 9.45% for 15-year investments. The bank also has an option to pre-pay investors in the 10-year bonds after 5 years and after 10 years for 15-year bondholders.

Senior officials of the bank said that details regarding the opening of the issue would be announced on Tuesday. Although these investments are long-term in nature, investors are assured liquidity through the listing of these bonds.

Investment bankers who are distributing the issue say earlier experience suggests that SBI is bound to receive a huge oversubscription on the first day itself. "There are many banks that are offering 9.5% and above on fixed deposits. But these investments typically are for one-two years and interest rates are widely expected to come down in the long-term," said an investment banker.

SBI`s earlier retail bond issue, which offered a much lower return, was a huge success with the bonds being sold out on the first day. Successful investors got an opportunity to make equity-like gains as the bonds were listed at a 5% premium on listing. While the returns on the bonds are even better, the listing position would depend on the extent of unsatisfied demand in the public issue. Prices of SBI`s earlier bonds fell marginally on Monday, but the securities continue to trade at a significant premium over the issue price.

Although the size of the issue is minuscule compared to the bank`s balance sheet, the issue is part of an ongoing programme to develop a market for long-term resources. The bank presently funds all its long-term loans, which include home loans and loans to the infrastructure sector, through core savings deposits and medium-term deposits. The long-term bonds will enable the bank to match some of its long-term fixed liabilities
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New Year, Old Problems for India Bonds

Source : HARSH JOSHI:The Wallstreet Journal:JANUARY 3, 2011, 6:54 A.M. ET

After a difficult year, India's domestic bond market seems to have found some stability. But it won't last.

Moving conversely to prices, yields on benchmark 10-year government bonds have fallen-to 7.96% on Monday from 8.18% a month ago. Credit the Reserve Bank of India for this: It paused its interest-rate-raising campaign in December, and has been buying government bonds to ease a liquidity shortage in the banking system.

But this short-term move belies a rough ride for bond investors last year. Before they began to rise in December, the 10-year bonds had fallen sharply over the previous six months as the central bank raised its key policy rates six times in just nine months. Also weighing down the price of existing bonds, New Delhi sold $84 billion in bonds between April and December alone.

This decline has made India a standout among emerging currency bond markets in Asia, which have benefited from rising interest among global investors: HSBC's Asia Local Bond Index rose 12.2% in 2010. The India index rose only 5.2%, but that gain is thanks only to interest payments from the bonds included in the calculation.

In part, this underperformance is because India limits foreign investment in government bonds to a total of $10 billion-a tiny piece of the overall market. For Indonesia, where foreigners hungry for emerging-market debt play a much bigger role, HSBC's index rose 21%.

The decline looks certain to continue. The RBI is facing a persistent inflation problem and rate increases could start again as early as the end of this month, says Robert Prior-Wandesforde at Credit Suisse. One market is already anticipating this: Even as bond yields have come down, the five-year overnight indexed swap rate has risen a quarter of a percentage point.

The government, meanwhile, has shown little interest in letting up on the fund raising. Even after raking in an unexpectedly large $30 billion through the sale of government assets, New Delhi isn't veering from its goal of selling $98 billion of debt by the end of the fiscal year, in March. That would be a record for India, and four times what the government was borrowing as recently as 2007. With the economy still growing fast, there's little reason to think New Delhi will demonstrate much restraint in the coming fiscal year.

Put it all together and the 10-year yield could rise nearly half a percentage point by the end of March, says Manoj Swain, chief executive at bond-trading firm Morgan Stanley India Primary Dealer.

This is one market that isn't likely to benefit from India's broader charm.