India’s largest lender State Bank of India (SBI) is looking to tap the US bond markets to raise $500-750 million, said a person aware of the development.
SBI is planning to raise funds through Regulation S bonds, said the person cited above, adding that the roadshows could begin as early as next week. Bank officials have held discussions with about six bond arrangers, the person cited above said.
“It is better if they do not wait much longer since there will be a surge in dollar bond issuances later in January and beyond. It will be announced soon,” said the person cited above, who spoke on condition of anonymity.
Raised by foreign issuers in the US, Regulation S bonds cannot be subscribed to by US citizens. While the tenor of the bond could not be immediately ascertained, SBI had raised five-year $750 million in Regulation S bonds in April 2023. Those bonds were benchmarked against the five-year US treasury rates and priced at a spread of 145 basis points over the benchmark.
A basis point is one-hundredth of a percentage point.
An email sent to SBI remained unanswered.
Experts said there has been an increase in the number of large Indian development finance institutions (DFIs), non-banking financial companies (NBFCs) and banks exploring possibilities of tapping the offshore bond market.
SBI’s fundraising plans come at a time the US treasury yields have fallen by almost 1 percentage point on expectations of multiple rate cuts this year. Last month, the US Federal Reserve indicated three possible rate cuts in 2024, leading to the US 10-year benchmark bond yield falling below 4% for the first time since August. Meanwhile, Reuters reported on 20 December that dollar bonds raised by Indian firms hit a 14-year low in 2023. This, the report said, was a fallout of elevated global yields which discouraged borrowers.
Venkatakrishnan Srinivasan, managing partner, Rockfort Fincap Llp, a financial advisory firm, said that even with potentially fully hedged higher pricing, Indian entities and banks may pursue US bond issuances under Regulation S this year due to various reasons.
“This might include diversifying their investor base, tapping into a broader pool of investors interested in emerging markets, taking advantage of improved market conditions after the pandemic, or seeking access to larger capital markets to fund expansion or strategic initiatives,” said Srinivasan. “Despite the higher cost, the benefits of accessing international markets could outweigh the increased expenses for these entities.”
Non-bank lender Shriram Finance is also looking to raise some US dollar bonds. “The overseas bonds market is looking attractive, given the India growth story. The regular issuers will find it attractive to explore more opportunities in the overseas market,” said Parag Sharma, the company’s joint managing director and chief financial officer.
Sharma said Shriram’s target to grow about 15% could lead to borrowings of ₹5,000 crore in the overseas market in FY25. The company has so far raised ₹4,500 crore in dollar-denominated bonds in FY24.