Financial Daily from THE HINDU group of publications
Wednesday, Mar 17, 2004
Financial Daily from THE HINDU group of publications Wednesday, Mar 17, 2004 |
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Money & Banking
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Overseas Borrowings Vijaya Bank to raise $50 m through ECBs
Abhrajit Gangopadhyay
Mr M.S. Kapur
Bangalore , March 16
VIJAYA Bank has made its maiden foray into the external commercial borrowing (ECB) markets. The public sector bank has mandated Standard Chartered Bank to raise at least $50 million (around Rs 250 crore) with a greenshoe option of another $25 million. Speaking to Business Line, the Chairman and Managing Director of Vijaya Bank, Mr M.S. Kapur, said: "The funds would be used to augment our rupee resources." This implies that the bank intended to swap the foreign currency for rupee resources.
The bank's entry comes close on the heels of two other PSU banks - Canara Bank and Corporation Bank. Earlier this year these two banks had raised funds at spreads of 46 basis point and 44 basis points over the London Interbank Offered Rate (Libor). Similar to both of these banks, Vijaya Bank has also opted for raising the funds only for 364 days. "We would like to remain cautious," Mr Kapur said. This was in view of international rate volatility and mounting apprehension of a rise in US interest rates. Banking sources said that the pricing for Vijaya Bank had not yet been decided. But pricing is expected to be close to what all the public sector banks have raised since Vijaya Bank also has a strong balance sheet like its peers. With Libor currently at 1.5 per cent and 12-month forward premium at 0.4 per cent, the all-inclusive cost for the bank would be in the region of 2.5 per cent. This would be the cheapest source of funds for the bank, cheaper than even the savings bank rate of 3.5 per cent. However, these costs are a little more expensive than FCNR funds where the costs are closer to about 1.25 per cent. But even at this slightly higher spread, there was considerable arbitrage opportunity for the bank, especially if parked in gilt-edged securities or in Treasury bills. If parked in the highly liquid 7.46 per cent 2017 security, where the yield to maturity is currently about 5.4 per cent, the effective spread for the bank would be close to 3 per cent. These spreads could be even higher in the event of the bond prices rising further than the current levels, the banking sources said. On the other hand, if the bank prefers to park in the 364-day Treasury bills, the spreads would still close to about 2 per cent. However, there is some fatigue developing in the ECB markets for issues of Indian banks, banking sources said. This was evident from the performance of the ICICI Bank issue in the secondary markets. ICICI Bank had raised the $300 million for five years at a tight spread of 106 basis points over Libor last year. This issue is currently on offer in the secondary market at a slightly higher spread. The fatigue was also evident from the pricing of IDBI's $300 million issue early this month. The five-year issue was priced at 145 basis points over Libor.
More Stories on : Overseas Borrowings | Public Sector Banks
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