The Hindu Business Line : <I>Canara sees good pricing for issue </I>

The exercise for placement of the $300 million medium-term note issue of Canara Bank has begun and pricing is expected to be even finer than anticipated.

Banking sources said that rating of the issues had begun. Indications were that the Global rating agency Moody's has been mandated to rate the issue.

The capital issue by the bank would have two components, $200 million by way of MTNs and another $100 million by way of perpetual bonds.

The MTNs would have maturity profile of 15 years with a call option at the end of 10 years and a step up option for investors who preferred to remain locked in for 15 years.

The issue is being lead arranged by Citi Group Global Capital Market, Hongkong and Shanghai Banking Corporation Ltd, ABN Amro Bank N.V. and UBS-AG.

Pricing for the both securities was initially expected to be in the band of 140-160 basis points over the London Inter Bank offered rate. Six month Libor is currently at 5.13 per cent.

Speculative Grade

But this could change with the altered risk perception. India is widely expected to be upgraded by the international rating agencies. The Dun & Bradstreet India's Chief Executive Officer, Dr Manoj Vaish, said: "We can expect an upgrade to investment grade to happen soon. This will translate into a reduced risk premium for India." Currently all the global rating agencies such as Moody's, Standard & Poor and Fitch have placed India in the speculative grade.

The reduced risk premium would translate into an even more attractive pricing for Canara Bank's MTN. In fact, expectations are that the spreads would be shaved by another 10-15 basis points on both the MTNs and the perpetual bond issues. Even after factoring issue management, hedging costs, the placement is cheaper by at least 200 basis points compared to domestic upper tier-II/perpetual bond issues.

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