IFR Magazine – January 20, 2018

BARODA TO REOPEN INDIAN AT1

BANK OF BARODA plans to reopen the offshore
market for Indian bank capital with an
offering of US dollar Additional Tier 1
securities as early as this month.
A successful issue will be only the second
offshore AT1 from India and promises to
LEADûTOûAûmOODûOFûSIMILARûFUNDRAISINGSûFROMû
the country’s biggest banks, as they try to
restore capital levels after addressing bad
loans.
Bank of Baroda, India’s third largest
public sector bank in terms of market
capitalisation, reported gross bad loans at
Rs463bn (US$7.25bn) as of the end of
September, or 11.16% of total advances. Its
NETûPROlTûDROPPEDûûYEAR
ON
YEARûTOû
Rs3.55bn in the September quarter.
“We are planning to raise US$500m from
AT1 capital with a greenshoe option of
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lNANCIALûOFlCERûOFû"ANKûOFû"ARODAûTOLDû)&2û
“We want to come to the market as early as
possible, before February.” Timing is subject
to regulatory approval.
India’s state banks are taking advantage
of improved access to the capital markets
after the government announced a US$32bn
recapitalisation plan for the sector, with
US$21bn of that to come from issuing
BONDSû4HEûlRSTûRECAPITALISATIONûBONDSûAREû
due to be issued by the end of March, but no
details have been given yet.
'OPALARATNAMûSAIDû"ARODAûALSOûWANTEDûTOû
RAISEûUPûTOû2SBNûFROMûAûQUALIlEDû
institutional placement of shares in late
February or early March.
“Our capital adequacy ratio will improve
to 12.27% by March end from 11.64% at the
end of September after the fundraising,” he
said.
'OPALARATNAMûSAIDû"ANKûOFû"ARODAûWOULDû
not know how much capital it would receive
from the government until the national
budget announcement on February 1.
Moody’s said it expected the government to
allocate the capital across the 21 public-
sector banks to ensure that they all had
CET1 ratios above the minimum Basel III
requirement of 8% by the end of March
2019.
Bank of Baroda’s CET1 ratio stood at 8.39%
at the end of September, trailing the average
of 8.7% for public sector banks.
Indian AT1s are subject to temporary
writedowns if an issuer’s common equity
Tier 1 capital ratio drops below 5.5%, a ratio
that will rise to 6.125% from March 31 2019,
and coupons are deferrable and non-
cumulative. Investors, however, have
escaped losses on some domestic AT1
securities from the public sector even when
the issuer was running short of capital,
adding to a belief that the government will

protect subordinated creditors to avoid a

WIDERûCRISISûOFûCONlDENCE

In an unusual move in January, Indian

Overseas Bank was allowed to use its share

premium account to write off its

accumulated losses, without which it may

NOTûHAVEûHADûSUFlCIENTûDISTRIBUTABLEû

reserves to pay the coupon on its AT1

securities.

DEMAND EXPECTED

“We expect decent demand from home

[Indian] buyers, especially non-resident

Indians and private banks,” said Ang Ben

You, research analyst at CreditSights.

“Investors will be willing to invest based on

demonstrated government support for the

banks and regulatory support to avert

coupon default.”

Banks will still need to raise more capital

from debt and equity markets following the

government injection, with some of the

larger institutions expected to raise offshore

!4ûCAPITALûFORûTHEûlRSTûTIME

3TATEû"ANKûOFû)NDIAûWASûTHEûCOUNTRYSûlRSTû

bank to sell offshore AT1s, but the tight

pricing of its offering in September 2016

forced it to cut back the issue size to

US$300m, and poor early trading put a halt

to the anticipated follow-up deals from

other institutions.

Within two months, the 5.5% bonds had

traded down to a cash price of 97.7, but a

subsequent risk rally helped them to recover

and they had surged to 104.1 by Wednesday.

That implied a yield to call of 4.3%,

according to Thomson Reuters data.

SBI’s AT1s are rated B1/B+ (Moody’s/S&P),

below its senior unsecured Baa2/BBB–/BBB–.

Bank of Baroda’s outstanding US$1bn senior

notes due July 2019 are rated Baa3/BBB–

(Moody’s/Fitch).

Bank of Baroda, which like SBI is majority

state-owned, could mark the start of a wave

of Indian AT1 issuance. Fitch estimated in

September that the Indian banking sector

needed to raise US$65bn of capital by the

end of March 2019.

“Bank of Baroda’s dollar AT1 could

potentially encourage more dollar AT1s out

of India – especially if it comes cheap – as

banks need to also present their own plans

to raise capital in order to receive capital

from the government,” said CreditSights’

Ang.

Bank of Baroda has appointed Bank of

America Merrill Lynch, Barclays, Citigroup, DBS,

HSBC, JP Morgan and Standard Chartered to

lead an AT1 offering, IFR reported earlier.

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UP

EXIM INDIA AND NTPC PLAN PRINTS

EXPORT-IMPORT BANK OF INDIA, rated Baa2/BBB–

(Moody’s/Fitch), has hired banks for a

benchmark issue of 144A/Reg US dollar

SENIORûNOTESûWITHûTENORSûOFûlVEûTOû

10 years.

Barclays, Citigroup, JP Morgan, MUFG and

Standard Chartered Bank have arranged

MEETINGSûWITHûlXED

INCOMEûINVESTORSûINû

Asia, Europe and the US, starting last Friday.

The proposed issue will come off the

bank’s US$10bn global MTN programme.

Meanwhile, state-owned power

generation company NTPC has sent banks a

request for proposal to raise up to US$400m

from 10-year and 30-year dollar bonds,

according to a market source.

The deadline for banks to reply is January

24.

Last November, Moody’s upgraded NTPC

to Baa2 from Baa3 after it revised India’s

sovereign rating.

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announcement on plans to issue dollar

bonds.

INDONESIA

SSMS NETS OVER US$1.1bn

SAWIT SUMBERMAS SARANA attracted orders of

OVERû53BNûFORû53MûOFûûlVE

year non-call three notes, two months after

pulling a similar offering in November due

to a lack of demand.

Asia was allocated 90% of the notes and

the remainder went to EMEA. In terms of

investor types, 89% were fund managers,

7%were private banks, 3% were banks and

1% were others.

The Indonesian palm oil producer, rated

B1/B+ (Moody’s/Fitch), priced the bonds at

ûINûLINEûWITHûlNALûGUIDANCEû-ARKETINGû

began at 8.125% area.

The Reg S bonds are being issued in the

name of SSMS Plantation Holdings. SSMS

will guarantee the notes, together with Citra

Borneo Indah.

The notes will be rated on par with the

issuer. Fitch has a positive outlook on the

company.

Proceeds will be used to repay bank loans

and for general corporate purposes. Also, it

will use up to US$10m to invest in forest

conservation in Indonesia to be managed

initially through The Forest Trust as a Forest

Conservation Fund.

BNP Paribas "$    ûANDûCitigroup were joint

bookrunners, as well as lead managers with

CIMB.

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GUIDANCEûOFûûONûlVE

YEARûNON

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notes, versus the initial 7.25% area. Total

orders reached US$650m.

The company owns and operates 19 oil

palm estates covering 70,603 hectares of

planted area in Indonesia.

EMERGING MARKETS ASIA-PACIFIC