The country's largest lender State Bank of India may look at raising funds through an overseas bonds sale programme in the next quarter if market conditions turn favourable and spreads narrow, an official said.
The state-run lender, which has so far raised around $2.9 billion through medium-term notes (MTN), prefers the spreads to come down to 175-185 basis points over the mid-swap rate from the current level of around 200-210 basis points.
An MTN programme allows an issuer to raise funds on an ongoing basis through various products such as floating rate notes or fixed rate bonds. Mid-swap rate is the equivalent of the London interbank offered rate (Libor) for longer maturity bonds. Spread is the mark-up or premium above the mid-swap rate and is variable according to market condition.
At the current rate, SBI will have to pay a coupon rate of around 4.45-4.55 per cent. The coupon rate for the bond issue is calculated on the basis of the prevailing spreads above the five-year mid-swap rate.
"We would be comfortable to raise money at a spread of 175-185 basis points. This would be possible only when the market turn normal over the next three months," a State Bank official, who did not wish to be identified, told PTI today.
Last October, SBI had mopped up $750 million (about Rs 3,600 crore) through its MTN issue, which carried a maturity of five years and a coupon rate of 4.5 per cent.
The bank, however, has not decided the amount to be raised in the next phase of MTN issue as this will depend on the fund requirement in its overseas business. The bank has a headroom to raise above $2 billion under the MTN route, the official said.
The State Bank is currently in discussions with a host of foreign lenders such as Bank of America-Merrill Lynch, Standard Chartered, HSBC, UBS, Barclays, Citi, and JP Morgan, amongst others to advise it on the bond issue.
"Looking at the things where they are, we do not have any urgent need to launch the next tranche of the MTN issue at least in the immediate future as the market is expected to remain volatile on account of the ongoing European debt crisis," the official said.
The State Bank launched its $5-billion MTN programme in 2004 to finance its overseas expansion plans. Recently, a few other lenders like Bank of India and Axis Bank had also tapped the MTN route to raise sufficient funds to support their overseas business plans.
Late last year, ICICI Bank had also raised $750 million from issuing bonds from its Bahrain branch.