SBI bond sale to set trend for overseas borrowing

State Bank of India launched a five-year dollar bond sale on Wednesday aiming to raise $1 billion or more, sources with direct knowledge of the deal said, a move that might restart overseas borrowing by Indian issuers.

India's biggest lender has given an initial guidance of around 400 basis points over Treasuries and is aiming to price the transaction as early as Wednesday morning New York time, the sources said.

Although pricing is expected to tighten as the lender attracts orders, several analysts and bankers described the initial guidance as generous.


The price that investors charge SBI to borrow money is seen as key, as it would determine whether the sale can spur other domestic issuers to raise funds overseas.

"The offer is very rich at these levels," said an investor based in Hong Kong, although he expects the spread over Treasuries to become smaller than 400 basis points. He expects the sale to be priced at around 380 bps.

Indian corporate and financial issues have refrained from selling dollar bonds this year as a surge in risk aversion and India's worsening economic and fiscal fundamentals have made it expensive to borrow in dollars.

The only two dollar bond sales from India this year were in February, when energy conglomerate Reliance Industries raised $1.5 billion through 10-year dollar bonds and Axis Bank sold $500 million in 5.5-year money

SBI had been seen as potentially opening up overseas markets at a time when Indian companies face high domestic interest rates, as the lender is widely seen as a good benchmark for India

Furthermore, SBI is perceived to be in the midst of a turnaround as it improves asset quality and boosts its credit recovery mechanisms.

Since SBI reported better-than-expected quarterly net profit on May 18, its shares have surged 18 percent as of Tuesday's close, compared with a 5.2 percent gain in the Nifty.


Hemant Contractor, a managing director at SBI's International Banking Group, said the final pricing had not been decided.

"This is not the final price. This is just a guidance," he said.

As a comparison to SBI's initial guidance, Indian private sector lender Axis Bank priced its September 2017 bond deal at 440 bps over US Treasuries in February. Its debt now trades at a spread of 405-420 bps.

India has faced a number of challenges, including an economy that is growing at the slowest pace in five years and stubbornly high inflation, while the government has been seen as unable to take decisive action.

The rupee has also slumped, making it more expensive for issuers to service overseas debt.

Both Fitch Ratings and Standard & Poor's to cut India's sovereign outlook to "negative" earlier this year, threatening the country's "BBB-minus" investment-grade status.

A downgrade of India's sovereign ratings to non-investment grade could increase the cost of borrowing for Indian corporates and banks.

Bank of America Merrill Lynch, Barclays Capital, Citigroup, Deutsche Bank, JP Morgan and UBS are arranging the SBI bond sale.


Updated Date: Dec 20, 2014 10:38 AM

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