AT1 Bonds
PNB, IOC, DCB Bank to offer AT1 bonds; issue at premium rates likely: Report
Mumbai: Punjab National Bank (PNB), Indian Overseas Bank (IOB), and DCB Bank may need to offer higher interest rates on their bonds as they prepare to sell them during a period when global banks are facing significant pressure, according to a report published in The Economic Times (ET).
The situation has been further aggravated by the recent decision of the Swiss regulator to write down around $17 billion of Additional Tier 1 (AT1) instruments in the Credit Suisse bailout.
According to the report, PNB is set to commence bidding for its AT1 bonds on March 24th, with plans to raise a base issue of Rs 500 crore and a green shoe issue of Rs 1,500 crore.
The final price for the bonds is yet to be determined. The report further noted that India Ratings has assigned an AA+ rating to the AT1, or perpetual, bond issue.
As per the available information, PNB's current interest rate for perpetual bonds falls in the range of 8.75% to 8.80%.
The report quoted industry experts: "Expected pricing for the bond is 9%, although the bank previously raised Rs 582 crore AT1 priced at 8.40% in December 2022."
Separately, IOB plans to raise Tier II capital with a base issue of Rs 200 crore and a green shoe of Rs 800 crore. On the other hand, DCB is preparing to raise Tier II bonds with a base issue of Rs 250 crore and a green shoe of Rs 50 crore, ET reported.
It is worth mentioning that AT1 bonds are unsecured and perpetual bonds that banks issue to enhance their core capital base. These bonds are primarily intended to serve as a buffer against unforeseen financial shocks. In times of trouble, banks have the option to convert AT1 bonds into equity or write them down to maintain their financial stability.
Investors are wary of AT1 bonds due to past events such as the write-down of Yes Bank's outstanding AT1 bonds by the Reserve Bank of India (RBI) during a bailout three years ago. In addition, the recent troubles faced by Credit Suisse and Yes Bank's AT1 bonds have further contributed to investors' scepticism.
Furthermore, as per the report, DCB will commence the auction of its Tier II bond offering on March 27th, offering an interest rate of 9.35%. On the other hand, IOB will initiate its bidding process on March 23rd, although the rates have not yet been determined.
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