 "First perpetual bond issue after valuation rule change sees strong interest")
India's first additional Tier I perpetual bond issuance after recent rule changes to make them more appealing was sold at a lower-than-expected coupon, indicating a revival in demand for such papers, four merchant bankers said on Tuesday.
Canara Bank sold perpetual bonds with a call option at the end of 10 years at a coupon of 8.27 per cent compared to expectations of 8.30 per cent-8.34 per cent.
KEY CONTEXT
Additional Tier I perpetual bonds have no pre-defined maturity date and mature when an issuing bank exercises the call option.
Funding through such paper had dropped to Rs 17,500 crore in fiscal 2024 from Rs 34,400 crore the previous year.
To drum up interest, the Securities and Exchange Board of India (SEBI) recently allowed mutual funds to value these papers as per call option, instead of 100-year papers.
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WHY IT'S IMPORTANT
Funding via this route opens up another option for banks to raise capital, especially as they struggle to raise deposits.
This was the first such debt issue from any lender this financial year and paves the way for others, with State Bank of India among at least three set to sell such debt soon.
BY THE NUMBERS
Canara Bank's perpetual bond issue received bids worth Rs 4,658 crore ($555.24 million), which is over 4.5 times its base size of Rs 1,000 crore.
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