Bank of India (BoI) is planning to raise the Rs 1,000-crore Tier II capital through the private placement route and is targetting an interest rate of 12 to 12.5 per cent. The bank has asked merchant bankers to make formal presentations in this regard and is likely to finalise the terms within a week, sources said.
BoI is raising the money to enhance its tier II capital. However, merchant bankers point out that BoI issue raises some queries about the objective of the issue.
We have written to the bank that it can raise its tier II capital only up to Rs 850 crore. Since it already has subordinated debts worth Rs 350 crore, it can add only Rs 500 crore, a merchant banker said. The bank has a tier I capital of Rs 1,700 crore.
BoI is hoping to raise money at a lower interest rate band of 12 per cent to 12.5 per cent. It is also looking for a higher maturity of eight to ten years, a merchant banker said. Merchant bankers have reportedly written to the bank about the difficulties in raising such a big amount for a lower rate even for a triple A entity like BoI. The longer maturity is also cited as a hurdle.
We have told the bank that Rs 1,000 crore at 12 per cent for a ten-year period is rather too ambitious, said a merchant banker. We have also asked them to wait a while as the fate of the Hudco book-building exercise, which also had a fine rate of 12-12.5 per cent, will be known by early next week. HAL also could be a case study, he added.
The Rs 500-crore Hudco issue is slated to close on Friday. Initial reports suggest that the issue was meeting resistance from investment bankers who think the rate is too low. The fact that the tax-free portion has been oversubscribed much before shows that investors are resisting such fine pricing, a banker opined.
However, the Rs 150-crore Hindustan Aeronautics Ltd (HAL) issue is opening for book-building on Monday. As in Hudco, the indicative band is 12-12.5 per cent. According to sources, HAL has fine-priced the issue following their success in negotiating with a public sector bank for a Rs 100 crore loan at 12.5 per cent.
The liquidity in the system is such that good corporates are able to negotiate rates lower than the prime lending rate, a general manager with a public sector bank said. According to merchant bankers, as an alternative route to formal private placement, triple A rated corporates are negotiating for cheaper rates with banks.
