SBI Tier-I bond issuance: Investors turn circumspect about 10-year ‘call option’

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The “call option” at the end of 10 years seems to have turned investors cautious about investing in it Central Bank of IndiaIssuance of Tier-I bonds (under Basel III).

India’s largest bank has managed to offload Rs 3,101 crore across bonds at a coupon rate of 8.10 per cent for the issue size of Rs 10,000 crore (base issue size: Rs 3,000 crore + green shoe option: Rs 7,000 crore), according to bond dealers. Case closed today.

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“The call option for the Tier 1 bond issue was only available at the end of 10 years. Investors are still unsure whether the returns are correct at this time. Many of the bank’s previous issues had a call option at the end of five years,” a bond trader said.

A callable bond is a bond under which the issuer can “call” the bond from the investor before the maturity date.

Traders note that if the SBI tries to raise more money (beyond the size of the base issue), it will have to pay out approximately 8.25 percent.

The bank received 94 applications totaling INR 5,920 crore. Of this, it accepted 64 offers totaling INR 3101 crore per trader.