IOB, others shelve MTNs as cost of debt soars

The rising cost of borrowing in the international market and a slowdown in credit demand due to global uncertainties has resulted in banks going slow with their medium-term notes (MTN) issues.

DNA spoke to three banks which have an existing MTN programme and all three said they don’t plan to go ahead.

Banks raise money abroad through MTNs to finance the business needs of their overseas branches.

“Due to the uncertainty abroad, we aren’t able to gather assets (the lending scenario is uncertain). So we will wait for a few months and see how things shape up before thinking about an MTN issue,” said a senior official of Indian Overseas Bank who did not wish to be named.

At the start of this fiscal, IOB had raised $500 million and was planning to tap the market again after six months.

Similarly a senior official in Syndicate Bank said that the bank was recently planning to raise $200 million after a successful MTN issue of $500 million earlier this year. But now the plans have been put on hold.

Union Bank of India conducted roadshows earlier this month to gauge investor appetite, which they found to be good for Indian paper, but the cost of funds have turned prohibitive.

“If the market improves, we will enter it. It is very difficult to guess when that will happen,” said VK Khanna, general manager (treasury and international banking division), Union Bank of India.

According to a London-based issue arranger, since April, the cost of raising funds for medium-term papers have gone up 20 to 30 basis points.

“Liquidity is a major concern among international investors, hence the low appetite,” this person said, adding interest rates will stabilise in the next 4-5 months following which issuers will return.