Bank of India to raise $2billion via medium-term notes

Bank of India (BoI) is planning to raise $2 billion (Rs9,000 crores) through a medium-term notes (MTN) issue.

The timing of the fund-raising has not been finalised.

“We are looking for the right pricing. We will raise this amount when we get that,” said N Seshadri, executive director of the bank.
MTN is a type of debt funding and it matures in 5-10 years. It is used to ensure constant cash flows — essentially, it allows issuers to tailor their debt issuances to meet financing needs.

The MTN programme of the bank has been rated thus: BBB- by Standard & Poor’s (S&P) for senior unsecured notes, BB+ on the lower tier-II subordinated notes, BB for the upper tier-II subordinated notes and BB on hybrid tier-I notes.

The tier-I capital (equity capital and disclosed reserves) of a bank can absorb losses without it being required to cease trading, while tier-II capital (undisclosed reserves, general loss reserves and subordinate term debts) can absorb losses in the event of a winding-up and so provides a lesser degree of protection to depositors.

AAA is the highest rating given by S&P, and it indicates extremely strong capacity to meet financial commitments.

Last month, State Bank of India (SBI) raised €750 million by way of an MTN. It paid 230 basis points over six-month Euro Libor.

Bank of India is planning to raise the money in dollars and the pricing will be made over the six-month US Libor, which is currently at 0.46%.

There is a difference of about 70 basis points between the rates of six-month Euro Libor and six-month US Libor.

Merchant banking sources said BoI will have to pay more than SBI, which has better credentials.