InvestorQ : Did SBI manage to raise funds via AT1 bonds as it had planned?
Debbie Mascarenhas made post

Did SBI manage to raise funds via AT1 bonds as it had planned?

Answer
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Arti Chavan answered.
2 weeks ago


In fact, State Bank of India has officially announced that it has raised Rs.4000 crore through the issue of additional tier 1 or AT-1 bonds in the market. The coupon rate of 7.74% paid by SBI is the lowest in this category of bonds issued by bonds.

AT-1 bonds are a special category of perpetual bonds on which only interest is payable for life. However, such bonds can be called back by the issuer at the end of 5 years or more. AT-1 bonds are treated as quasi equity and hence qualify as Tier-1 capital for banks.

However, there is also a downside risk to it. AT-1 bonds being quasi equity can be repudiated in a crisis, as it happened in the case of Yes Bank in March earlier this year. Hence this instrument is a high risk instrument depending on the issuer.

The good thing for SBI in this AT-1 bond issue is that the yield at 7.74% is sharply lower than the rate of 8.3% paid by Canara Bank when it had issued AT-1 bonds. However, that is more because SBI is a TBTF or Too Big To Fail bank in the Indian context.

The original issue size was Rs.1000 crore but SBI had received bids worth Rs.6000 crore. As a result, SBI opted to exercise its green shoe option and retained a total of Rs.4000 crore. SBI had repudiated Yes Bank’s AT-1 bonds when it was taken over.