Wednesday, February 8, 2023
  • SIGN IN
SUBSCRIBE
Pravasi Indians Magazine
  • Home
  • Books
  • Business
  • Culture
  • Diaspora
  • Spaces
  • Interviews
No Result
View All Result
  • Home
  • Books
  • Business
  • Culture
  • Diaspora
  • Spaces
  • Interviews
No Result
View All Result
Pravasi Indians Magazine
SUBSCRIBE
  • SIGN IN
Home Economy

Wooing Overseas Investments

Wooing Overseas Investments

As banks raise money through AT-1 bonds, it comes as a risk versus reward option for HNIs

By Kumud Das

If you are an overseas investor looking for new avenues for your money, Additional Tier (AT)-1 bonds are certainly an attractive option.

At a time when banks abroad are offering 1.5-2 percent of interest on fixed deposits, these perpetual bonds offer a yield of up to 5 percent.

AT-1 bonds carry no maturity date, and they have a call option. This means that the issuer can call or redeem the bonds if it is getting money at a cheaper rate, especially when interest rates are falling. Some of the country’s biggest banks are considering going overseas for raising money, as the domestic markets have dried up. Indian banks are planning to raise $2 billion through AT-1 bonds abroad.

HDFC Bank was the latest to go for raising money through AT-1 bonds in overseas markets to the tune of $1 billion. It was the biggest such sale by an Indian lender, to strengthen its balance sheet amid a rebound in credit growth after the pandemic’s second wave ebbed. The bonds elicited a robust reception from investors across markets, and the overall demand was $4.5 billion. The final pricing of the bond is 3.7 percent, as against the initial price guideline of 4.1 percent, sources said. If experts are to be believed, banks like State Bank of India (SBI), Axis Bank and ICICI Bank are likely to jump on the bandwagon in the near future.

Smaller banks like Bank of Maharashtra (BoM) are currently waiting and watching their bigger brothers on this front. Dinkar Shankhpal, treasury head, BoM, says, “We are waiting and watching what kind of responses banks like SBI and others get through such kind of fund raising and accordingly the top management of the bank can take a call later.” A senior official of Union Bank of India said, on condition of anonymity, “Yes, we are planning to raise money through AT-1 bonds overseas. We are waiting for the right time.” The Board of Union Bank at its meeting on June 30 has given the go-ahead for raising capital by an amount not exceeding Rs 9,700 crore, which includes AT-1 bonds of around Rs 6,200 crore.

“These banks, aspiring to raise AT-1 bonds or quasi-equity securities, are trying to woo overseas investors. The country’s largest lender, State Bank of India, might go for it,” said Ajay Manglunia, managing director, debt capital market, at JM Financial.

SBI has already tested the waters by raising $100 million through AT-1 bonds last year on an experimental basis. Sources say SBI is currently discussing the size and timing of its proposed AT-1 bonds internally. However, it is yet to approach any merchant banker for this.

After the Securities and Exchange Board of India (SEBI) came out with its regulation on valuation of AT-1 or perpetual bonds in March, the market has been dull in terms of appetite for perpetual bonds among institutional investors. Traders who earlier used to buy these perpetuals like fund houses and insurers have kept away.

As the Reserve Bank of India (RBI) has restricted banks from declaring dividend, insurers cannot buy these bonds being issued by the banks as they have a requirement for dividend payment. Fund houses don’t want to buy perpetuals because of the SEBI pricing formula that the bond needs to be valued in the portfolio as a 10-year paper this year, 20-year paper next year and 30-year paper after that. The SEBI circular in March had guided fund houses that they cannot value perpetual bonds based on the call option which they have. The call option is normally in the fifth year. Now, if a fund house is pricing perpetual bonds for 30 years, then it will incur mark-to-market losses. Hence, they have stopped buying perpetual bonds and are instead selling them.

When it comes to the insurers, they can definitely buy a 30-year paper but it will lead to a lot of mark-to-market losses for them. The reason is that the pricing of a 30-year paper will carry a comparatively higher yield.

Other potential investors include individuals, High Networth Individuals (HNIs) or corporates. Here the problem is that SEBI does not allow corporates to buy perpetuals in the primary market. Rather, it is only the Qualified Institutional Buyer (QIB) who can bid for perpetual bonds. So, in such a scenario, only banks can buy the perpetuals. Now, if banks buy the perpetuals, they have got capital adequacy ratio-related requirements. Thus, the perpetual is knocked out of capital.

According to Gurunath Mudlapur, MD, Athestone Capital Market, “These bonds are a safe bet for HNI investors for the simple reason that even though they are unsecured bonds sans maturity, the banks who are doing this are there in the market for a longer period of time and they are not going to be bankrupt, in any case. Secondly, when you look at these bonds from the perspective of risk versus reward, then too they are more attractive.”

It is yet to be seen if the overseas investors will be interested in the forthcoming dollar bonds. The positive point is that these bonds will be offering yields closer to 5 percent. If you look at the five-year normal paper, they offer a yield of 1-1.5 percent, whereas in the overseas markets the interest rate is close to zero level. So, these overseas investors should be interested in putting in money as they will get an attractive yield from these bonds.

(The author is a senior journalist.)

Tags: Additional Tier (AT)-1 bondsAT-1 bondsKumud Dasoverseas investorWooing Overseas Investments
ShareTweetShare

Related Posts

DEFYING THE ODDS
Economy

DEFYING THE ODDS

December 25, 2022
SETTING AN INCLUSIVE AGENDA
Economy

SETTING AN INCLUSIVE AGENDA

December 30, 2022
FIGHTING GLOBAL HEADWINDS
Economy

FIGHTING GLOBAL HEADWINDS

November 29, 2022
WEATHERING THE STORM
Economy

WEATHERING THE STORM

November 29, 2022
CUTTING REMITTANCE COSTS
Economy

CUTTING REMITTANCE COSTS

September 26, 2022
INVESTING IN A GREENER FUTURE
Economy

INVESTING IN A GREENER FUTURE

August 25, 2022

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Recent Posts

  • “Komagata Maru Way” to be designated as a portion of Canadian roadway
  • Four Indian-American Lawmakers appointed
  • History of Indian Diaspora in USA
  • Government of India Celebrates 17th Pravasi Bhartiya Divas at Indore
  • Famous Indian Diasporas in Australia

Archives

  • February 2023
  • January 2023
  • December 2022
  • November 2022
  • October 2022
  • September 2022
  • August 2022
  • July 2022
  • June 2022
  • May 2022
  • April 2022
  • March 2022
  • February 2022
  • January 2022
  • December 2021
  • November 2021
  • October 2021
  • September 2021
  • August 2021
  • July 2021
  • June 2021
  • February 2021
  • November 2020
  • October 2020

Categories

  • Arts & Culture
  • Books
  • Business & Economy
  • Cover Story
  • Culture
  • Diaspora
  • E-magazine
  • Economy
  • Environment
  • Food and Travel
  • Guest Article
  • Heritage
  • Interviews
  • Lifestyle
  • Literature
  • Mixed Bag
  • Musings
  • Perspective
  • Philanthropy
  • Publisher's Note
  • Society
  • Soul Connections
  • Spaces
  • Special Feature
  • Spotlight
  • Travel
  • Trending Now
  • Uncategorized
  • Wellbeing
  • World
  • Young and Restless
Remember Me
Register
Lost your password?
Pravasi Indians Magazine

Pravasi Indians has become the voice of millions of overseas Indians spread across diverse regions of the world. A joint venture of M/s Template Media and GRC India, this magazine is the first publication exclusively dealing with a wide gamut of issues that matter to the members of Indian diaspora.

Contact Us

M/s Template Media LLP
(Publisher of PRAVASI INDIANS),
Rudraksha Apartment (Top Floor),
Opposite Ambience Tower,
Kishangarh, Vasant Kunj,
New Delhi-110 070
www.pravasindians.com

Connect with us at:

Mobile: +91 89209 54252
Email: info@pravasindians.com

Categories

  • Arts & Culture
  • Books
  • Business & Economy
  • Cover Story
  • Culture
  • Diaspora
  • E-magazine
  • Economy
  • Environment
  • Food and Travel
  • Guest Article
  • Heritage
  • Interviews
  • Lifestyle
  • Literature
  • Mixed Bag
  • Musings
  • Perspective
  • Philanthropy
  • Publisher's Note
  • Society
  • Soul Connections
  • Spaces
  • Special Feature
  • Spotlight
  • Travel
  • Trending Now
  • Uncategorized
  • Wellbeing
  • World
  • Young and Restless

Quick Links

  • About Us
  • Advertise With Us
  • Archives
  • Our Team
  • Support Us
  • Privacy Policy
  • Terms and conditions
  • Contact Us

Copyright @ Template Media LLP. All Rights Reserved.

No Result
View All Result
  • Home
  • Books
  • Business
  • Culture
  • Diaspora
  • Spaces
  • Interviews

Copyright @ Template Media LLP. All Rights Reserved.