Bank of Baroda raises ₹2,500 crore via Basel III compliant tier II bonds
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Shares of Bank of Baroda Ltd ended at ₹224.75, up by ₹5.55, or 2.53%, on the BSE. The bank accepted bids for ₹2,500 crore at a coupon of 7.75% per annum.
State-owned Bank of Baroda on Thursday (December 21) said it raised ₹2,500 crore on December 20, 2023, through the issuance of Basel III compliant tier II Bonds Series XXV.
The bank received a total of 88 bids amounting to ₹6,803 crore against the base issue size of ₹1,000 crore (which translates to 6.8 times the base issue size) and a greenshoe option to retain oversubscription up to ₹1,500 crore.
The bank accepted bids for ₹2,500 crore at a coupon of 7.75% per annum, according to a stock exchange filing.
These bonds are unsecured, listed, rated, subordinated, non-convertible, taxable, and redeemable, having a tenure of 10 years from the deemed date of allotment with a five-year call option.
The allotment of these bonds took place on December 21, 2023. Under Basel-III capital regulations, banks globally need to improve and strengthen their capital planning processes.
Bank of Baroda reported an operating profit of ₹8,020 crore, up 33% from the year-ago period. The lender’s profit after tax came at ₹4,253 crore, up from ₹3,313.4 crore in the corresponding period in the previous year. As per a CNBC-TV18 poll, the PAT was projected as ₹3,921.5 crore. The bank had reported a net profit of ₹4,070.1 crore for the April to June 2023 quarter.
The lender’s net interest income or NII — the difference between the revenue generated expenses that occurred during the period — rose 6.5% to ₹10,831 crore. This was below the estimated ₹11,058.8 crore. In the July-September quarter last year, the NII came at ₹10,174.5 crore.
Shares of Bank of Baroda Ltd ended at ₹224.75, up by ₹5.55, or 2.53%, on the BSE.
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HDFC Bank raises ₹7,425 crore via bonds for infrastructure and affordable housing projects
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Shares of HDFC Bank Ltd ended at ₹1,656.20, up by ₹3.15, or 0.19%, on the BSE. The regulatory filing by HDFC Bank confirmed the issuance of 7,42,500 bonds, each with a face value of ₹1 lakh.
India’s largest private sector lender HDFC Bank on Wednesday (December 20) announced the successful mobilisation of ₹7,425 crore through the issuance of non-convertible bonds.
The bank, via a private placement, issued 7.71% unsecured, redeemable, long-term, fully paid-up, non-convertible bonds in the form of debentures. This strategic funding initiative aims to support crucial infrastructure and affordable housing projects.
The regulatory filing confirmed the issuance of 7,42,500 bonds, each with a face value of ₹1 lakh. The funds generated through this issuance will be directed toward funding initiatives that contribute to the development of infrastructure and affordable housing projects.
HDFC Bank reported a 9.3% rise in net profit at ₹15,976 crore for the quarter ending September 2023 compared to CNBC-TV18 poll’s forecast of ₹14,616.5 crore. The bank’s net interest income (NII) for the quarter stood at ₹27,385 crore, slightly below CNBC-TV18’s projected NII of ₹28,187.4 crore.
The lender also disclosed key asset quality metrics, including gross non-performing assets (GNPAs) at ₹31,578 crore, representing 1.34% of gross advances, and net NPA at ₹8,073 crore, accounting for 0.35% of net advances. Additionally, the bank set aside provisions totalling ₹2,904 crore.
HDFC Bank’s return on assets (RoA) was reported at 1%, annualised at 2% for the first half of FY24. The net interest margin was at 3.4%, while the core net interest margin stood at 3.65%. The bank’s pre-provision operating profit reached ₹22,694 crore. The gross advances stood at ₹23.54 lakh crore.
Shares of HDFC Bank Ltd ended at ₹1,656.20, up ₹3.15, or 0.19%, on the BSE.
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Sebi plans to introduce ‘fast track’ concept for public issuance of debt securities
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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To further enhance the participation of non-institutional investors in the corporate bond market, Sebi has “proposed to permit issuers to launch NCDs (non-convertible debentures) or NCRPS (non-convertible redeemable preference shares) with the face value of ₹10,000.”
To deepen the bond market, the Securities and Exchange Board of India (Sebi) is looking to introduce the concept of ‘fast track’ public issuance for debt securities and further reduce the face value of debt securities, including non-convertible debentures, issued on a private placement basis to ₹10,000 from ₹1 lakh at present. If implemented, the move would also promote ease of doing business.
“The main intention of a fast track public issuance of debt securities is to facilitate frequent issuers with a consistent track record, to make public issues of debt securities with reduced time, cost and effort,” Sebi said in its consultation paper.
To further enhance the participation of non-institutional investors in the corporate bond market, Sebi has “proposed to permit issuers to launch NCDs (non-convertible debentures) or NCRPS (non-convertible redeemable preference shares) with the face value of ₹10,000.”
However, in such cases, the issuer should appoint a merchant banker who would carry out due diligence for the issuance of such privately placed NCDs and NCRPS and disclosure requirements in the private placement memorandum, Sebi said.
Further, such debt securities should be plain vanilla with a simple structure and should not have any credit enhancements or structured obligations, it added. This came after Sebi in October 2022 cut the face value to ₹1 lakh from ₹10 lakh earlier. The decision, along with the mainstreaming of Online Bond Platforms (OBPs) has helped enhance the participation of non-institutional investors in the bond market.
During the period from July to September 2023, it was observed that non-institutional investors subscribed to 4% of the total amount raised as compared with the general average of less than 1%. Besides, the total volume of trades undertaken on the OBPs aggregates to around Rs 333 crore by 1974 users (investors), Sebi noted.
Further, the regulator has suggested the requirement of appointment of a merchant banker in case of issuance of Securitised Debt Instruments (SDIs) at a face value of ₹10,000.
Sebi suggested that instead of inserting the audited financials for the last three financial years and Stub period financials in the offer document, the same should be allowed to be provided as a QR code scanning which opens the web link to the financials on the issuer’s website.
Further, details of certain information required for the current year such as Related Party Transactions (RPTs), and remuneration of directors among others to be specified as required up to the latest quarter. Also, Sebi has suggested that record dates should be standardised 15 days before the due date of payment of interest or redemption.
The regulator has “proposed to consider, like equity issuance, an avenue to debt issuers to make the issuance of public issues on fast-track basis”.
Suggesting modalities, Sebi said that the need to seek comments from the public on a draft offer document for fast-track public issues should be reduced to two working days. Also, it proposed that the timeline for listing fast-track public issues of debt securities should be T+3 as opposed to T+6 for a regular public issue, a move aimed at considerably bringing down the timelines for raising funds through debt securities.
The issuers opting for the route should be allowed to utilize electronic modes to advertise the public issue and the requirement of advertising in newspapers should be done away with. Such issues should be kept open for a minimum of one working day and a maximum of 10 working days.
It has been proposed that the requirement for minimum subscription for banks and entities in the financial sector, when undertaking issue through the route, should be abolished.
Further, the retention limit should be fixed at a maximum of five times of base issue size to provide more flexibility to the issuers in terms of fundraising. The Sebi has sought comments from the public till December 30 on the proposals.
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Bank of Baroda to issue infrastructure bonds of up to ₹5,000 crore in first tranche
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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Infrastructure bonds serve as crucial financial instruments utilised by various entities within India, including governments, banks, and authorised infrastructure companies. They play a pivotal role in funding diverse developmental projects across the nation.
Bank of Baroda on Friday (November 24) said it has decided to issue infrastructure bonds of up to ₹5,000 crore in the first tranche for a tenure between seven to 10 years. The announcement follows the lender’s earlier disclosure of intending to raise infrastructure bonds amounting to ₹10,000 crore. This initial tranche comprises a base issue of ₹1,000 crore, supplemented by a green shoe option of up to ₹4,000 crore, Bank of Baroda said.
Infrastructure bonds serve as crucial financial instruments utilised by various entities within India, including governments, banks, and authorised infrastructure companies. They play a pivotal role in funding diverse developmental projects across the nation.
Typically, they come with a lock-in period of five years during which investors cannot sell the bonds However, post the lock-in period, investors have the flexibility to trade these bonds on stock exchanges like the National Stock Exchange (NSE) or BSE.
Participation in infrastructure bond investments is open to all Indian citizens above 18 years of age, as well as Hindu Undivided Families (HUF).
Experts say that issuance of these bonds fuels infrastructural development and presents a decent investment avenue for individuals seeking stable returns.
Investors require a Demat account and a PAN to trade in infrastructure bonds. They can apply for these bonds in the physical form too and require a self-attested PAN card. They need to have identity and address proof as part of the KYC (Know Your Customer), procedure.
At the time of writing this report, the shares of Bank of Baroda were trading 0.05% higher at ₹194.40 on the BSE.
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Jio Financial Services in talks with merchant bankers for maiden bond issue
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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The company, which was listed in August, plans to establish itself as a full-service financial services firm in a rapidly growing market, including auto, home loans and other products, competing with the likes of Bajaj Finance.
Jio Financial Services is in early talks with merchant bankers for its maiden bond issue, four bankers told Reuters on Monday. The company may look to raise ₹5,000 crore ($600.6 million) to ₹10,000 crore through the issue and may tap the market in the last quarter of this financial year, the bankers added.
Jio Financial, which was carved out of Reliance Industries, is in the process of getting its credit rating and other necessary approvals, they said. The bankers declined to be identified as they are not authorised to speak to the media, while Jio Financial did not immediately reply to Reuters’ email for comment.
The company, which was listed in August, plans to establish itself as a full-service financial services firm in a rapidly growing market, including auto, home loans and other products, competing with the likes of Bajaj Finance.
“Jio Financial has got a strong promoter parentage and it is expected that the company will automatically get AAA credit rating,” said Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap.
“While the pricing will depend on factors like tenor and balance sheet size of the company at the time of issue, being an NBFC, it will be 10-20 basis points higher than RIL.” Earlier this month, Reliance Industries raised 200 billion rupees via 10-year bonds in the largest issue by a non-financial Indian firm, paying 40 basis points more than the government’s borrowing cost.
Ahead of the bond issue, bankers have recommended that Jio Financial issue shorter-term commercial papers and put bank borrowing lines in places to establish pricing, said two bankers.
It has also been recommended to issue bonds not longer than five-year maturity, according to four bankers.
“Since the company is new, the documentation and compliance will take time, and we could see them coming in before end of March” a merchant banker with a private bank said.
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SBI raises ₹10,000 crore via tier 2 bonds at 7.8% coupon rate
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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This is the first Tier 2 bond issuance by the bank in the current financial year. The bank has been rated AAA with stable outlook from CRISIL and India Ratings & Research Private Limited for these instruments.
State Bank of India (SBI), country’s largest lender, on Wednesday, November 1, raised ₹10,000 crore at a coupon rate of 7.81% through its first Basel III compliant Tier 2 Bond for the current financial year. The bonds are issued for a tenor of 15 years, with the first call option after 10 years.
The issue attracted an overwhelming response from the investors with bids of ₹15,907 crore and was oversubscribed almost 4 times against the base issue size of ₹4,000 crore with 98 bids, SBI said.
Dinesh Khara, Chairman SBI expressed that “wider participation and heterogeneity of bids demonstrated the trust investors place in the country’s largest Bank.”
This is the first Tier 2 bond issuance by the bank in the current financial year. The bank has been rated AAA with stable outlook from CRISIL and India Ratings & Research Private Limited for these instruments.
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Borrowing costs on foreign loans to get costlier as global bond yields rise
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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India’s benchmark bond yield has hovered around 7.3% for the last few days whereas the US yield crossed 5% for the first time since 2007. That has resulted shrinking the spread between the two notes to 237 basis points (bps), levels last seen in May 2006.
With the yield on US-10-year bond surpassing the psychological 5% mark, domestic companies that opt for foreign currency loans are likely to see higher debt servicing costs going forward.
The strengthening dollar and surging crude oil prices add fuel to the fire. While the rupee has depreciated 1.6% against the US dollar over the past three months, oil prices have surged 13.2% during the same period.
While foreign-currency-denominated borrowings normally tend to be cheaper compared to local currency loans, the narrowing spread between the US and Indian bond yields will bring down cost advantage for many of them.
For instance, the finance cost as a percentage of total debt for BSE500 companies stood at 7.7% at the end of FY23, against 6.6% for companies with some overseas borrowings on their books.
The gross borrowings for BSE500 companies (excluding banks and financials) increased 11% year-on-year to ₹33.04 lakh crore in FY23, data sourced from Ace Equity database shows. Of them, nearly 70 companies had foreign loans on their books, totalling ₹4.4 lakh crore. Additionally, the foreign loans of these 70 companies account for 22.2% of their combined borrowings, which stood at ₹19.6 lakh crore as of March 2023.
The companies with the highest foreign loans in absolute terms include IOCL, ONGC, TATA Motors, NTPC, and Adani Ports & SEZ, among others. While the foreign currency loans account for more than 80% of Jubilant Pharmova and Oil India’s total borrowings in FY23, other companies like Adani Ports and SEZ, Glenmark Pharmaceuticals, and UPL also have borrowed more than 60% from abroad as of March 2023.
Source: Ace Equity
India’s benchmark bond yield has hovered around 7.3% for the past few days whereas the US yield crossed 5% for the first time since 2007. That has resulted in shrinking the spread between the two notes to 237 basis points (bps), levels last seen in May 2006.
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Ten-year treasury yield breaches 5% for first time since 2007
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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The rise in the global bond benchmark above the psychological level of 5% underscores investors’ assumption that the Fed and fellow central banks are unlikely to cut borrowing costs quickly amid sticky inflation, even in the event that they soon call a halt to rate hikes.
The 10-year Treasury yield crossed 5% for the first time in 16 years, propelled by expectations the Federal Reserve will maintain elevated interest rates and that the government will further boost bond sales to cover widening deficits.
The yield rose nine basis points to 5.01%, the highest since 2007.
Fed Chair Jerome Powell suggested last week that central bankers are inclined to hold rates steady at their November meeting, but remain open to hiking again if a resilient economy fans inflation risks.
Also undermining bonds are mounting concerns regarding the sustainability of the government’s burgeoning budget deficits, which will likely force the US Treasury to keep increasing the supply of bills and bonds. Having boosted the size of its quarterly bond sales for the first time in 2 1/2 years in August,
Secretary Janet Yellen’s department is now readying its November refunding.
The double-whammy of the Fed and Treasury has crushed the hopes of many that 2023 would prove to be the “year of the bond.” More recently, it’s proved powerful enough to offset haven flows into US debt as the Israel-Hamas conflict reignited geopolitical worries.
“While levels look attractive in the near term, investors are likely to continue waiting for catalysts (such as geopolitical risks or slowing data) rather than catching the falling knife amid technical weakness,” Gennadiy Goldberg and Molly McGown, strategists at TD Securities wrote in a recent note. “This could keep rate volatility extremely high in the near-term.”
Still, 10-year treasuries above 5% are a buy for Morgan Stanley Investment Management, which sees yields overshooting the firm’s fair value above that level.
Psychological level
The rise in the global bond benchmark above the psychological level of 5% underscores investors’ assumption that the Fed and fellow central banks are unlikely to cut borrowing costs quickly amid sticky inflation, even in the event that they soon call a halt to rate hikes.
Another emerging threat to treasuries is the changing composition of the market. The Fed is reducing its bond holdings via quantitative tightening, while the holdings of foreign governments such as China’s are waning. In their place, hedge funds, mutual funds, insurers and pensions have stepped in.
The fact that they are less price-agnostic than their predecessors is leading to the revival of the the so-called term premium for bond pricing. That’s where investors seek higher yields to compensate for the risk of holding longer-dated debt.
The treasury market remains on course for an unprecedented third year of annual losses. Higher borrowing costs may ultimately serve as a brake on the US economy, helping the Fed’s inflation fight. The average rate on a 30-year fixed mortgage soared to around 8% in recent weeks, while the cost of servicing credit card bills, student loans and other debts has also climbed as market rates rose.
Powell echoed some of his colleagues by saying a sustained rise in yields could “at the margin” lessen the pressure for tighter monetary policy.
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With US bond yields set to surpass equity earnings yields, should investors jump out of stocks and into bonds? Not really.
In 2008, the earnings yield on the S&P 500 dropped to 0.8%. US 10-year bonds then offered a yield of over 2.8%, suggesting a spread of 200 basis points. If you had jumped out of stocks into bonds then, you would have cursed yourself. Because by 2012, stocks had gained over 70% and were still available at a yield of well over 6%, while the yields on bonds were still near 2.2%.
This was because a sharp drop in earnings led to a big dip in yields, but a swift recovery led to a big leap in profits driving yields sharply down. It was during this period that the price-to-earnings (PE) of the S&P 500 hit a peak of over 120 times before plunging to nearly 13 times. This, of course, was an exceptional period, but it pays to keep this phenomenon in mind.
S&P 500 Price and Price to Earnings Ratio
But let’s take a closer look at how the S&P 500 and US bond yields have behaved.
YIELDS AND EQUITIES DO BOND
US bond yields and equities do tend to influence each other to an extent. A look at the correlation between US 10-year bond yields and the S&P 500 since 1990 reveals a moderate negative correlation of 0.67. What this suggests is that when bond yields rise, there is a likelihood that equity valuations may be negatively impacted. So, the common refrain of investors moving money from equities to bonds when yields rise does have some empirical basis.
That said, should you be worried when bond yields surpass equity earnings yields?
S&P 500 versus US 10-year Treasury bond yield
THE EQUITY-BOND YIELD EQUATION
Many are pointing to the surge in the US yields and its surpassing earnings yield on equities as a significant development. Some are suggesting this could have ominous consequences.
True, the development is significant because US earnings yields have remained well above the US 10-year bond yield since 2003. That’s a good 20-year phenomenon. But during the period from 1994 to 2002, US bond yields traded above the earnings yield. We looked at both these periods for pointers to what could transpire.
Interestingly, in 1994, the earnings yield spread over the 10-year bond yield was a negative 90 basis points. In 2002, it was a negative 70 basis points. In 1994, the 10-year bond offered a yield of 5.65% and the S&P 500 over the period delivered a compounded annual growth rate (CAGR) of 7.8%. So, while the spread was negative, it wasn’t as if equities didn’t offer any returns, but one could argue that the differential in returns didn’t justify the risk of being in equities.
What’s also interesting is that during this period, the PE increased at a CAGR of 5.2%, suggesting a lower contribution from earnings growth than PE expansion.
In contrast, during the post-financial crisis period starting in 2010, when the earnings yield spread was a positive 200 basis points, equities delivered a CAGR of over 11% with only a 2.5% CAGR in PE. This suggests strong returns compared to the then bond yield of 3.9%.
Clearly, buying into equities when the yield was an attractive 5.7% also helped generate attractive returns—given the average yield of 4.5% and a median yield of 4.4%. So, buying into equities when spreads are positive is a good idea, but that itself isn’t good enough.
S&P 500 Yield vs US 10-year Treasure bond yield
THE IMPONDERABLES
It is important to appreciate that bond yields and earnings are both dynamic, moving numbers and basing investment decisions purely on yield differentials isn’t a sound strategy. Also important to understand is what parameters you are comparing. If you consider yields on a 10-year US bond, you are looking at fixed returns over a long period. Hence, looking at earnings yield for just the next four quarters may not be a fair like-to-like comparison. What if there is an acceleration in earnings during the period? That can make the yield on the discounted value look much more attractive.
In the present context, while undoubtedly buying into bonds does seem like a good idea to lock into yields near 5%, assuming interest rates don’t go much higher, a softer-than-expected economic landing—averting a recession—could also spell an upward revision in earnings estimates, altering the yield differential.
With earnings yield for the S&P 500 presently a tad below historical mean and median levels, a further dip in equities could throw up opportunities for investments in growth stocks for discerning investors. So, buy bonds for sure, but don’t give up on equities because the yields could change quite swiftly if things go right. Also, an inversion in yield spreads doesn’t necessarily signal a slide in equity values—we’ve lived through this before.
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CAG transfers 3 auditors who unearthed alleged irregularities in central schemes, Congress demands reversal
KV Prasad Jun 13, 2022, 06:35 AM IST (Published)
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The transferred officers, identified as Atoorva Sinha and Dattaprasad Suryakant Shirsa from the Indian Audit and Accounts Service, were in charge of the audit reports scrutinising the Dwarka Expressway project and the Ayushman Bharat scheme, as per a report in The Wire. The third auditor, Ashok Sinha, had initiated the audit of the Ayushman Bharat scheme.
The Comptroller and Auditor General (CAG) has reportedly transferred three auditors who were responsible for unearthing alleged irregularities in the Centre’s flagship Bharatmala and Ayushman Bharat schemes. The controversial transfers came to light through a report byThe Wire, drawing sharp criticism from the Congress.
The audit reports, which shed light on potential irregularities within the schemes, were presented in Parliament this August. However, it has been revealed that the transfer orders were issued on September 12, as reported by The Wire.
The transferred officers, identified as Atoorva Sinha and Dattaprasad Suryakant Shirsa from the Indian Audit and Accounts Service, were in charge of the audit reports scrutinising the Dwarka Expressway project and the Ayushman Bharat scheme. The third auditor, Ashok Sinha, had initiated the audit of the Ayushman Bharat scheme.
Atoorva Sinha, who had been appointed as the principal director of audit infrastructure in Delhi earlier in March, has been reassigned as the accountant general in Kerala’s Thiruvananthapuram, according to The Wire.
The CAG’s reports brought to light irregularities in various aspects, including the Bharatmala project, the construction of Dwarka Expressway, violations of toll regulations by the National Highways Authority of India (NHAI), the Ayushman Bharat Scheme, and alleged undue advantages granted to contractors in the Ayodhya Development Project.
The Congress party, in a strong reaction to these transfers, accused the government of intimidating CAG officers who had exposed “corruption” within various schemes. Jairam Ramesh, Congress General Secretary, demanded an immediate revocation of the transfer orders and a return of the officers to their original positions within the CAG.
The Modi government operates mafia style under a cloak of silence and intimidation. If anyone exposes its modus operandi of corruption, they are threatened or removed. The latest victims are three officers of the Comptroller and Auditor General (CAG),…
Ramesh asserted that this move was consistent with what he described as the modus operandi of the Modi government, accusing it of threatening and removing individuals who expose corruption.
He further stated, “The Modi government operates mafia style under a cloak of silence and intimidation. If anyone exposes its modus operandi of corruption, they are threatened or removed.”
The CAG report uncovered widespread irregularities within infrastructure and social programmes. It exposed a shocking 1400% cost increase and inconsistencies in the tendering process for the Dwarka Expressway. Additionally, it revealed a diversion of Rs 3,600 crore from highway projects, flawed bidding practices, and a substantial 60% cost increase in the Bharatmala scheme, he claimed.
“Not only that, an audit of the Ayushman Bharat scheme showed lakhs of claims made to dead patients and at least 7.5 lakh beneficiaries linked to a single mobile number,” he also claimed.
Ramesh, a prominent figure in the Congress party, alleged that the reassignment of the three CAG officers responsible for investigating the Ayushman Bharat and Dwarka Expressway irregularities was a deliberate move to conceal apparent corruption within the Modi government, even though the CAG is an independent body.
With inputs from PTI
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