SBI may retain Rs 5,500 cr in 2nd retail bond issue

In its second tranche of retail bonds, the country’s largest bank, State Bank of India, may end up retaining around Rs 5,500 crore received against Rs 2,000 crore that was notified.

The issue, which closed on February 28, got subscriptions of around Rs 8,600 crore in a week. SBI had offered Rs 2,000 crore of retail bonds, including a Rs 1,000 crore greenshoe option.

According to sources, half of the issue that was reserved for retail investors was oversubscribed over nine times. SBI received around Rs 4,600 crore in over two lakh applications. Since the bank has the option to retain up to Rs 10,000 crore of subscriptions from retail investors, the total amount could go up to Rs 5,500 crore.

One-fourth of the issue reserved for high net worth individuals got bids twice the amount offered, while the one-fourth reserved for qualified institutional buyers got bids around 15 times the amount offered.

The offer was open for a week and is believed to have been oversubscribed on the first day itself. An interest rate of 9.75 per cent for 10 years and 9.95 per cent for 15 years to retail investors seems to have attracted the flow. “Even after paying tax, an individual can enjoy a return of 6.97 per cent on the 9.95 per cent bond,” said a bond dealer with a brokerage firm. Non-retail investors will be given 9.3 per cent for 10 years and 9.45 per cent for 15 years. The 10-year bonds carry a call option in the fifth year whereas the 15-year bonds carry a call option in the 10th year.

The first issue of SBI’s retail bonds was worth Rs 1,000 crore, including a greenshoe option of Rs 500 crore in October 2010, which was oversubscribed almost 20 times. Like the earlier issue, bonds issued in the second tranche will also be listed on stock exchanges for trading. “The existing SBI retail bond is being traded at 9.10 per cent despite the availability of a fresh issue,” said another dealer. This reflects high demand for the bond in the secondary market as well. The bank could have raised the amount in the much cheaper wholesale market but attracting huge participation from the retail segment would not have been possible. The retail issue would have cost SBI 100 basis points higher as compared to a private placement.

The total subscription figure can be even higher as the figures are not final. “The subscriptions have been received manually at SBI branches across the country and it may take a couple of days more to know the total amount,” said a source close to the development. In December 2010, the bank’s board had approved fund-raising of Tier-II capital worth Rs 10,000 crore by March 2012 in different tranches.

Source: Business Standard