State Bank of India Raises ₹7,500 Crore Through Basel III Compliant Tier 2 Bonds

State Bank of India (SBI) has completed a significant fundraising initiative by issuing Basel III compliant Tier 2 bonds worth ₹7,500 crore on a private placement basis. The bonds are non-convertible, meaning they cannot be exchanged for shares, and are taxable. They are also redeemable, allowing SBI to buy them back, and rank as subordinated, unsecured debt, meaning they have a lower priority in repayment than senior debt in case of insolvency.

The base issue size was ₹5,000 crore, with an additional ₹2,500 crore raised through a green shoe option, which allows for over-allotment if demand is strong. This issuance helps SBI strengthen its capital base, crucial for meeting regulatory requirements and supporting future growth.

Legal firm Khaitan & Co. advised State Bank of India, with a transaction team including Manisha Shroff (Partner), Nikunj Mehta (Senior Associate), Charul Lunia (Associate), and Rishabh Kumar (Associate).

Impact: This bond issuance enhances State Bank of India's capital adequacy ratio and overall financial resilience. It provides investors with a fixed-income instrument from a highly reputable public sector bank, potentially increasing liquidity in the bond market for such instruments. The impact on the broader Indian stock market is moderate, primarily influencing the debt segment and investor sentiment towards banking sector instruments. Rating: 6/10.

Difficult terms: * Non-convertible bonds: Bonds that cannot be converted into equity shares of the issuing company. * Taxable bonds: Bonds where the interest earned is subject to income tax. * Redeemable bonds: Bonds that the issuer can repurchase or repay to bondholders on a specified date or before. * Subordinated bonds: Bonds that rank below other senior debt in terms of repayment priority in case of liquidation. * Unsecured bonds: Bonds not backed by any specific collateral or asset. * Basel III compliant: Refers to international regulatory standards for banks aimed at improving their ability to withstand financial and economic shocks. Tier 2 capital, like these bonds, is a component that absorbs losses. * Tier 2 Bonds: A type of capital that banks can issue to absorb losses, considered subordinate to Tier 1 capital. * Debentures: Long-term debt instruments not secured by physical assets or collateral. * Private placement: A sale of securities directly to a small group of institutional investors or accredited investors, rather than through a public offering. * Green shoe option: An over-allotment provision that allows underwriters to sell more securities than initially planned, typically to stabilize the price after trading begins.