Banks eye overseas fund raisingas domestic mkts losing sheen

Some of the India's big banks are mulling the idea to go for raising money overseas, as the domestic markets are dried up. If experts are to be believed, banks like SBI and HDFC are likely to come forward in near future for this, whereas other banks like Axis and ICICI may follow later as and when their need arises.

The Board of Union Bank of India (UBI) at its meeting held on June 30 has given a go-ahead to the bank to raise capital by an amount not exceeding Rs 9,700 crore, which includes AT-1 bonds of around Rs 6200 crore.

After Sebi came out with its regulation on valuation of Additional Tier-I (AT-1) or perpetual bonds in March, the market is dull in terms of appetite for perpetual bonds among the institutional investors.

Earlier, traders who used to buy these perpetuals like fund houses, and insurers, now have been shying away. Now, due to the regulation, the insurers can't buy these bonds being issued by the banks, as they have a requirement for dividend payment., this year, RBI restricted any bank to declare dividend.

Fund houses don't want to buy perpetuals because of the SEBI pricing formula that inbuilt a lot volatility such that the bond need 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 can't value perpetual bonds based on the call option which they have. The call option normally is in fifth year. Now, if a fund house is pricing perpetual bond for pricing of 30 years, then it will incur mark-to-market losses, So, they have stopped buying perpetual rather they have started selling perpetual bonds.

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

Now, the leftover investors include individuals, HNIs or corporates.But, here the problem was SEBI doesn't allow corporates to buy perpetuals in the primary market. Rather, it is only the QIB who can bid for the perpetual. Now, who are the QIBs? So, banks can only buy the perpetuals in such a scenario. Now, if banks buy the perpetuals, they have got capital adequacy ratio related requirements. Thus, the perpetual is actually knocked out of capital.

"Keeping it in view, these banks, aspiring to go for raising AT-I bonds or quasi-equity securities, are trying to overseas investors. Couple of banks are likely to go to overseas market for this and they may include HDFC Bank and SBI," Ajay Manglunia, managing director - debt capital market at J M Financial told Bizz Buzz.