Return
to Story Page
To print: Select File and then Print from your
browser's menu
Our Banking Bureau
Mumbai, Aug 25: State Bank of India has silenced the Cassandras of doom and challenged global rating agencies by mopping up over $4 billion through the Resurgent India Bonds issue, which closed on Tuesday. "As the last report came in, the collection is to the tune of $4.16 billion. The final figure could be marginally more. It is a record difficult to beat," chairman MS Verma said on Wednesday.
Mumbai, Aug 25: State Bank of India has silenced the Cassandras of doom and challenged global rating agencies by mopping up over $4 billion through the Resurgent India Bonds issue, which closed on Tuesday. "As the last report came in, the collection is to the tune of $4.16 billion. The final figure could be marginally more. It is a record difficult to beat," chairman MS Verma said on Wednesday.
The largest debt-raising exercise ever conducted in India, the bonds have exploded the myth that the US is the biggest market for the country's debt issues. "The US needs not always be the biggest contributor. The US-Europe combine accounts for about 30 per cent of the total collections, with the Middle East picking up the maximum -- 50 per cent -- and south-east Asia 20 per cent," Verma said.
The multi-currency issue -- denominated in dollar, pound sterling and deutsche mark--raised $4.16 billion in 16 working days (14 in the US and Europe) within the country through a syndicate of 46 banks apart from State Bank and its subsidiaries. The issue opened on August 5. The dollar-denominated bond accounts for a lion's share of the issue ($3.9 billion) followed by pound sterling ($106 million) and DM ($103 million).
Verma has described the "unprecedented" success of the triple-bond issue as a vote of confidence on the fundamentals of the economy. "Contributions came from 27 countries across the globe with the number of applications exceeding 75,000. The success demonstrates non-resident India's faith in our economy and rejection of the US sanctions," Verma said.
In calendar 1997, only two issues successfully mobilised over $4 billion from the global market.
Defending the pricing of the issue, SBI chairman said at 7.75 per cent, the five-year dollar-denominated instrument is "most adequately priced". "Debt issues of similar maturities floated Brazil, Argentina, Mexico and Poland are priced between 8 and 13 per cent. Only debt issues floated by the European Union countries and those which are triple-A rated or backed by mortgages can raise funds at lower than 7.5 per cent," Verma said.
The SBI chairman admitted that about 12-15 per cent of the RIB collection has come from the conversion of the existing FCNR(B) deposits. About 25 per cent of the issue proceeds will be kept overseas and the rest will be brought to India to finance infrastructure projects.
Outlining the "achievements" of the bond issue, Verma said the over $4-billion mopup through the RIB will help changing the global perception about India. "It will demonstrate that much steam is left in India's economic engine despite the global rating agencies prophecy of doom," he said.
Besides, the RIB proceeds will enable State Bank to lower the benchmark of lending rates in the international market. "The spreads on Indian papers have been widening. We will be able to stop that slide. We can move the ECB rates by keeping a good portion of the proceeds outside India," Verma said.
The RIB corpus will also boost the State Bank's international operations and the balance sheet size. "We plan to double the balance sheet size in four years. With the total mop-up pegged at around Rs 17,000 crore, the SBI balance sheet will grow by 10 per cent once the RIB proceeds are absorbed in the bank's books," Verma said.
INSIGHT
The issue has been a success in terms of mopping up funds, but the real measure of triumph will be in utilising the funds in order to earn a return exceeding the cost of funds. This will be difficult given that the rupee depreciation over the past year has been as high as 17 per cent, and the fragile external situation offers sizable downside risk.
The inflow will add to liquidity, and the RBI has already commenced open market operations to sterilise the increase in money supply. This is an opportunity for the central bank to reduce monetisation.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
------------------------------------------------------------
This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
------------------------------------------------------------