ICICI Bank, India’s largest private lender, is set to tap overseas markets to raise $750 million-1 billion through debt issuances. This would be a part of the bank’s $5-billion medium-term notes (MTN) programme that comprises senior unsecured notes and hybrid Tier-I notes.
The senior unsecured notes would have a maturity of five and a half years. According to market sources, the issue is likely this week with a coupon rate at a spread of 300 basis points above the US government bond of the same tenor.
“Depending upon the investor appetite, the bank may raise $750 million to $1 billion in the first tranche,” said an industry source. He added Standard Chartered Bank, Royal Bank of Scotland, HSBC Holdings, Deutsche Bank and Citigroup have been given the mandate for ICICI Bank’s overseas debt issue.
The senior unsecured notes carry a rating of ‘BBB-’ while the hybrid Tier-I notes have been rated ‘BB’ by rating agency Standard & Poor’s.
“The notes would be issued through the bank’s Dubai branch and the proceeds from the issue would be used to fund the bank’s international operations and for general corporate purposes,” Standard & Poor’s said in a statement.
Usually, companies take the MTN route to ensure a constant cash flow through the debt channel. These notes mature in five-10 years. A large number of banks have lately taken the MTN route to fund their overseas requirements to take advantage of the favorable interest rates abroad. The yield on the five-year US government bond today stood at 1.87 per cent.
While Bank of India would raise $500 million, Indian Overseas Bank would raise $350 million in the next few months to cater to the needs of Indian companies for foreign currency funds. Other banks that have announced MTN plans are State Bank of India, IDBI Bank, Bank of Baroda and Syndicate Bank.
With recent rate increases, funds have become relatively expensive in India. The Reserve Bank of India (RBI) had raised policy rates by 275 basis points since March 2010 to tame inflation. The yields on the 10-year, 7.80 per cent government bond, that serves as a benchmark for Indian debt issuances, closed at 8.32 per cent today.