ICICI Bank floats perpetual bond

ICICI Bank has become the first Indian bank to tap the overseas market with a perpetual bond having priced it at the lower end of the band.

The issue follows the Reserve Bank of India's (RBI) recent approval for raising capital abroad through innovative instruments. The issue was subscribed over 10 times. It had a $3.60 billion order-book with strong interest from investors across the globe.

Almost 37 per cent of the offer was sold to US investors, 30 per cent in Asia and 33 per cent in Europe. The offering was lead-managed by J P Morgan, Merrill Lynch International and Morgan Stanley.

The bank is raising $340 million (almost Rs 1,600 crore) through the issue at a coupon of 7.25 per cent. The pricing is at a spread of 194 basis points over London Interbank offered rate (Libor), translating into a spread of 247 basis points over 10-year US treasury bond.

Libor is the international interest rate benchmark, while one basis point is one hundreth of a percentage point.

According to merchant bankers, even as ICICI Bank has already raised fund overseas through medium-term note of 10-year, the pricing has been quite tight suggesting a good demand for Indian papers.

Further, it provides ample scope for further fine-tuning of prices by 5-7 basis point for the public sector banks that are raising funds to shore up capital base.

This is because while India has been upgraded to investment grade by Moody's, sovereign ownership of public sector banks adds to the pricing advantage, said bankers. Some banks that are lining up perpetual bonds include State Bank of India and Punjab National bank.

Currently, senior debt programme of Bank of India for 10-year is trading at 65 basis points over Libor in the international market compared with a spread of 72 bps for ICICI Bank's medium-term note.

Innovative instruments to be floated in the overseas market has helped these banks to raise debt fund to boost capital in two ways.

While it is not feasible to raise large amounts in the Indian debt market, the cost of funds through innovative instruments do not affect the bank directly as they are considered as tier I capital.

These perpetual securities are redeemable at the option of ICICI bank after 10 years with prior approval of RBI, says the offer document.