State Bank of India is likely to defer its overseas fund-raising plans on account of unattractive yields and moderation in growth. The country’s largest lender had planned to raise $1-billion funds through medium-term notes in November, but is now waiting for economic stability.
“Right now the US treasury yield have fallen sharply, but investors want the same yield of 4.5 per cent as before. They do not want to understand the direction in which the treasury yields are moving,” SBI Chairman Pratip Chaudhuri told Business Standard. The spreads have widened, Chaudhuri added.
Last week, Moody’s Investors Service cut its rating on SBI’s financial strength to D+ from C-, and lowered its hybrid debt rating on the bank to Ba3 (hyb) from Ba2 (hyb) which will make the borrowing costs higher for the public sector lender.
The benchmark US treasury yields are near multi-year lows. They fell on September 23 to 1.6714 per cent, the lowest in Federal Reserve figures beginning in 1953.
“The bank may face higher borrowing costs on its overseas debt programme because of Moody’s action as well as tight liquidity in dollar funding markets,” Hemant Contractor, deputy managing director of international banking at SBI had said.
Most banks use the resources raised via MTN route for their overseas business. While SBI doubled the fund-raising limit from $5 billion to $10 billion recently under the MTN plan, Chaudhuri said once Indian companies start setting up operations overseas, it will then exercise the MTN option.
"Last time when we raised money through MTNs, we used it for funding Tata Steel UK’s acquisition of Corus. We will exercise the MTN option this time when such Indian companies decide to expand operations overseas," Chaudhuri said. SBI helped Tata Steel’s acquisition of Anglo-Dutch firm Corus in 2007 by lending $1 billion for the $12.9 billion deal.
According to Dealogic data, the number of merger and acquisition deals dipped by 30 per cent this year between January 1 and October 6 as compared to last year.