 "BoB raises Rs 2500 cr via Tier-II bonds at 7.57%, surpasses mkt estimates")
Bank of Baroda on Wednesday raised Rs. 2,500 crore through its second tranche of Basel III compliant Tier 2 Bond at a coupon rate of 7.57 per cent, surpassing market expectations of 7.63 per cent to 7.65 per cent.
The bonds are issued for a tenor of 10 years, with the first call option after 5 years.
The issue attracted an overwhelming response from the investors with total bids reaching more than six times the base issue size of Rs. 1,000 crore, totalling Rs. 6,237 crores, and 2.5 times the total issue size of Rs. 2,500 crore.
Market participants said that there is strong demand among investors for long-term bonds on the view that the interest rates have peaked and the next step by the Reserve Bank of India’s Monetary Policy Committee would be a rate cut.
“There is demand for longer-tenure bonds, and Bank of Baroda being a public sector bank will always get a better pricing,” said Ajay Manglunia, managing director and head (Investment Grade Group), JM Financial.
Furthermore, investors are increasingly turning their attention to the corporate bond market, particularly following the conclusion of the central government borrowing program on Friday. Additionally, the weekly issuance of state government securities is currently below the indicative amount.
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“The demand is moving to corporate bonds as central government bond issuance ended. Additionally, as of today, the SDL issuance amount is less than the indicative amount as per calendar. The third reason is that people are locking in higher yields for longer tenure on the expectation that new issuances might not come to the market soon given board approvals take time,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.
The lender had raised a similar amount on December 20 of the last year through the first tranche of Basel III compliant Tier 2 Bond at a coupon rate of 7.75 per cent.
Before that, Bank of Maharashtra raised Rs 259 crore through tier-II bonds at 7.99 per cent on December 13, 2023. The bank was aiming to raise Rs 1,000 crore but total bids received were just above Rs 500 crore and that too at higher levels. The issue had a base size of Rs 250 crore and a greenshoe option of Rs 750 crore.