Bank of Baroda Eyes $1B Dollar Funding with Dual-Tranche Bond

Bank of Baroda (BOB), India’s second-largest state-run lender, is now exploring its own dollar funding options. This move follows the successful dollar debt sale by State Bank of India (SBI), the nation’s largest lender.

BOB’s Dual-Tranche Bond Strategy

BOB plans a dual-tranche bond issue with maturities spanning three and five years. The bank aims to raise approximately $500 million for each maturity, with flexibility to increase the amount for one based on demand.

• Initial guidance for the three-year bond is a spread of 120 basis points above the US Treasury.
• The five-year sale carries an initial guidance of 130 basis points above the US Treasury.

Driving Factors for Overseas Borrowing

Indian banks are increasingly issuing dollar bonds, largely influenced by a Reserve Bank of India (RBI) swap facility. Introduced in June, this facility has significantly reduced the cost of overseas borrowing, making it a more attractive option.

SBI recently demonstrated the strong market appetite for such issuances. Their five-year issue raised $500 million with a 5.25% coupon, attracting nearly $2.5 billion in bids.

Market Participation and Operational Details

Beyond SBI, several private sector banks have also secured funds through dollar bonds in recent months. These include HDFC Bank, Axis Bank, and ICICI Bank, highlighting a broader trend in the Indian banking sector.

Bank of Baroda will issue these new bonds through its International Financial Services Centre Banking unit located in GIFT City. The capital raised is earmarked for the bank’s head office, foreign branches, and general corporate needs.

• S&P is expected to assign the bonds a rating of BBB.
• Fitch Ratings anticipates a rating of BBB-.
• CareEdge Ratings projects a rating of BBB+ for the issue.