The Hindu Business Line : Syndicate Bank puts MTN issue on hold

Bangalore, Dec. 3 The global sub-prime meltdown has cast its shadow on the public sector Syndicate Bank’s planned cross-border capital raising through Medium Term Notes (MTN) for $125 million. Syndicate Bank has now put its MTN issue on hold with mounting pricing pressures.

The Syndicate Bank Chairman and Managing Director, Mr C.P. Swarnkar, said: “We are watching the situation. Unless pricing is favourable, we will not go ahead with the issue.” Currently, the rating exercise for the bank is under way. Only after this exercise is completed, the arrangers would be finalised, Mr Swarnkar said.

But bank sources said, “Yes, the MTN is on hold for the time being.” The reluctance to go ahead with the MTN had little to do with the Reserve Bank of India’s (RBI) capital controls.

Higher rates

In August last year, the RBI had imposed restrictions on external commercial borrowings in a bid to contain liquidity expansion. But the sources said the curbs were not an issue. “We had intended to park the funds in our London branch,” they said. Pricing was the major problem faced by the bank. “When we initially negotiated, the pricing was attractive at about 150 basis points over the London Interbank offered rates (LIBOR). The rates are now higher,” they said.

Global lenders were now asking for at least 300 basis points over LIBOR. This was despite Syndicate Bank’s public sector status and the country’s investment grade rating. Besides, the spreads offered were well above the RBI prescribed guidelines of 250 basis points over LIBOR for borrowings with tenors over five years.

Canara Bank, another public sector bank, had raised capital through the MTN route late last year at 125 basis points over LIBOR on the strength of a ‘BBB’ or investment grade Standard and Poor Rating. Axis Bank, had also raised capital funds through the MTN route last year at about 170 basis points over LIBOR.

Tightening liquidity

But the global sub-prime blow out has tightened global liquidity, as a slew of large American banks faced large loan write-downs. Citigroup, for instance, now faces a loan write-down of over $11 billion. Faced with this situation, Syndicate Bank is now weighing alternative options of either tapping the tier-two markets or proceeding with the follow-on public issue. The follow-on equity issue involves floating 8 (80 million) crore shares.

“We are still examining the option since we have a comfortable capital to risk weighted asset ratio,” the sources said. At the end of the second quarter of this financial year, Syndicate Bank’s capital to risk weighted asset ratio was 12.2 per cent, well above the regulatory requirement of 9 per cent. Besides, the bank also had sufficient flexibility to raise additional capital by way of tier-two bonds. Under current guidelines, banks are permitted to raise tier-two capital, through subordinated bonds up to 50 per cent of their tier-one capital.

The bank is expected to finalise its alternative capital raising programmes by the end of this financial year itself for meeting its Basel II capital requirements.

The deadline for Basel II compliance is March-end 2008. Besides, Syndicate Bank also has ambitions of growing its risk weighted assets book by 25 per cent and have an advances book of at least Rs 57,000 crore by FY 08-end.

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