SBI announces guidance for $700 million bond

IndiaÆs biggest lender tests investor enthusiasm after S&P upgrades the country's debt.
State Bank of India (SBI) yesterday announced initial pricing guidance on a two-tranche bond offer that is set to continue the trend of spread-tightening in the emerging markets.

SBIÆs lead bankers û Barclays Capital, Citigroup, Deutsche Bank and HSBC û are telling investors to consider a price of 125bp-135bp for the hybrid tier-one tranche, which is structured as a perpetual non-call 10. For the five-year senior floating-rate notes, the bankers are pitching a price of 40bp-43bp.

There is no official word yet on the size of the deal. Although early talk was of a $1.5 billion deal, SBI can in fact raise only $700 million across both tranches because of the limitations of its EMTN programme.

SBIÆs deal will be the first deal to test investor appetite after Standard & PoorÆs upgraded IndiaÆs debt to investment grade, for the first time in a decade. S&P predicts a stable outlook on India's foreign currency debt, raising the country's sovereign rating by one notch to BBB-, the lowest investment grade. Moody's rates India's foreign currency debt investment grade and Fitch Ratings rates both foreign and local currency debt investment grade.

With such a strong bid for Indian bank deals this year, investors will be expecting the price to tighten between now and the closing on Thursday, even though the guidance is already pushing the boundaries of what Indian issuers have achieved in the past.

SBI was patting itself on the back last month after raising $200 million in five-year floating-rate funds without paying any new issue premium, but at 45bp that deal now looks like it was a steal for investors.

SBIÆs decision to follow that trade with a benchmark deal was fuelled by the response to ICICIÆs landmark $2 billion offering, a deal that doubled its investor base and also priced without any new-issue premium. UTI Bank also followed suit, pricing comfortably inside the offer price of ICICIÆs floater.

Barclays, Citigroup and Deutsche Bank are also mandated to run an offshore deal for Bank of Baroda.
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