Public CompanyAxis bank's overseas bond issue put on hold
Other banks to go ahead with plans, private players to wait for spreads to narrow.
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Two months after it made presentations to international investors for an overseas bond sale, the country’s third largest private sector lender, Axis Bank, says it will wait for spreads to narrow before it raises funds.
However, public sector banks such as Bank of India and Union Bank of India, which had also lined up medium-term note (MTN) programmes, are going ahead with their plans.
Axis Bank had planned to raise at least $500 million (Rs 2,336 crore) under its ¤2 billion (Rs 13,858 crore) MTN programme.
“We are not in a hurry to raise money. The spreads are too high right now and we will wait for them to narrow,” said a senior executive.
“Our view is that once the Western governments withdraw their respective stimulus packages, Libor will move up but spreads will narrow, keeping the overall borrowing rate for us constant. However, we can pass on the increased Libor to our floating rate borrowers,” he added.
London Interbank Offered Rate, or Libor, is the rate which banks charge each other for short-term deposits in the London Interbank market. It is the most widely used benchmark for short-term interest rates.
Bank of India said the lender will start the process of appointing arrangers in January.
Union Bank of India also intends to raise over $ 500 million in the fourth quarter of the current financial year. The activity would begin in January soon after the overseas market opens after the holiday season.
Public sector companies can usually raise money at lower rates than their private sector counterparts, since it is assumed their paper comes with an implicit Government of India guarantee.
Following State Bank of India’s $750-million bond sale in October, a number of banks, including Axis Bank, Bank of Baroda and IDBI Bank, had expressed interest in tapping the overseas bond market. SBI had raised funds at 190 basis points above Libor. A basis point is a hundredth of a percentage point.
“After SBI raised funds at a low rate, many banks rushed to raise money. But the spreads have widened since then and haven’t narrowed yet,” said a senior executive with one of the investment banks managing the Axis Bank issue.
To further complicate matters for Axis Bank, the country’s largest private sector lender, ICICI Bank, had raised $500 million at 292 basis points over Libor, higher than what Axis Bank is willing to shell out.
“ICICI Bank can borrow money at a higher rate since it can lend money at a higher rate too. Axis Bank, on the other hand, mostly lends to Indian companies with operations abroad.” said a senior executive with a foreign investment bank.