Medium-term-note season on Bank St, IOB to raise $500 million

Bank of India, which raised $1 billion through medium-term notes (MTN) this year, plans to do an encore soon.

Indian Overseas Bank (IOB) has a goal to raise at least $500 million or `2,250 crore using the same route.

Private lender Axis Bank has sought a credit rating for €2 billion euro MTN.

And last month, the State Bank of India (SBI) raised €750 million this way

Looks like it is a notes issue season for banks.

“India’s credit is priced better than what it was initially, which is why a host of financial institutions and banks want to go and issue paper now because their cost of borrowing would be finer,” said Hemant Mishr, managing director and head of global markets (South Asia), Standard Chartered Bank.

It makes sense to tap the overseas market through MTN because US interest rates are likely to remain low in the foreseeable future, Mishr said.

M Narendra, the chairman and MD of IOB, said a $500 million MTN, the first such raising by the bank,  will easily find takers.

“But we have to do a lot of work before finalising the exact amount to be raised, the tenure we are looking at and the rates at which we want to raise. It will take about four to five months for this to happen,” Indian banks are preferring the five-year tenure to raise money through such notes.

MTN is a form of debt is used by banks to ensure constant cash flows. This allows them to tailor their debt issuances to meet financing needs in their overseas branches.

Dollar MTN issues are priced over six-month Libor (London interbank offered rate), which is currently at 0.46%.

Such notes issues see banks ending up paying anything in the range of 250-300 basis points over the six-month Libor for an issue with a maturity of five years.

SBI paid 230 basis points over six-month Euro Libor which currently is at 1.19%.