State Bank of India prices bond in jittery market

Observers say the SBI deal performs well considering the glut of Indian paper and Thursday's challenging market conditions.
State Bank of India (SBI), acting through its Nassau branch, priced a $225 million BB-rated (Standard and PoorÆs) hybrid tier-1 perpetual note yesterday. The offering, which comes under the bank's $5 billion MTN program, priced at 137bp over mid- swaps with a coupon of 7.14% via lead managers Citi and JPMorgan. The deal closed as Asian stocks fell on Thursday after a rebound in US bond yields.

Bookrunners released an initial guidance of 135bp-140bp over mid-swaps yesterday morning, which the leads later revised to 135bp-137bp. After generating an order book of $420 million, the deal priced at the mid-range, at the equivalent of 198.1bp over 10-year Treasuries. The paper is callable in 2017, with a 100bp step-up should the bonds not be redeemed.

A roadshow was not considered necessary for this credit.

In terms of comparables, bankers quoted State Bank of IndiaÆs existing hybrid tier-1 perpetual bonds issued in February under the lead management of Barclays, Citi, Deutsche Bank and HSBC. These were trading early this week at 129bp over mid-swaps, and had widened yesterday to 133bp.

A total of 38 investors participated in the transaction, with 69% of the bonds selling to Asia, 24% to Europe, and 7% to US offshore. Bookrunners allocated 16% of the paper to banks, 82% to funds and asset managers and 2% to retail.

Sources on the buy-side believe SBIÆs paper was well priced. There has been an abundance of supply of Indian bonds recently, but SBI limited the downside of this glut by issuing a relatively small deal. Bank of BarodaÆs $300 million bonds have widened significantly since they were issued in May, despite the bank being a solid and attractively-priced credit. SBI's latest offering, meanwhile, was last night hovering at re-offer.

ôSBI has a lot of respect and credibility in the market. It is a testament to the bankÆs standing that it was able to do a deal at all. But anyone seeking Indian exposure and increased yield will find this with a proxy for the sovereign issuer combined with a hybrid tier-1 perpetual,ö says a sell-side specialist.

Standard and PoorÆs rates the bank BBB-. The rating differential between the company and its bonds reflects the junior subordinated nature of the notes and the embedded interest deferral feature, says the report. This deferral feature kicks in should SBIÆs regulatory capital adequacy ratio fall below the minimum regulatory requirement stipulated by the Reserve Bank of India. In this case, it will be mandatory to skip interest payments. If the bank complies with the regulatory capital adequacy ratios but reports a net loss, it will have to seek RBIÆs approval to continue interest payments.
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