BoB to raise up to Rs 1000 cr via maiden infra bond sale

Bank of Baroda is set to sell infrastructure bonds for the first time in the local market, signalling the acceleration of a new infrastructure cycle as the private sector builds new roads, solar power plants and airports.

The bank aims to raise as much as Rs 1,000 crore in a private placement and a group of insurers including ICICI Prudential Life and LIC of India is in talks for subscription.

Bank of Baroda did not comment. The insurers could not be contacted immediately for comment.

The paper will have a tenure of seven years and may offer 7.10-7.35% depending on investor response, said people familiar with the matter. The bonds will be up for bidding on Friday.

The proceeds will be used to lend to the infrastructure sector and buyers of low-cost homes in the so-called affordable housing segment.

A recent regulator clarification has paved the way for insurance companies betting on such bonds. In an August 3 statement, the Insurance Regulatory and Development Authority of India said investment by insurers in long-term bonds issued by banks for financing infrastructure and affordable housing would not be classified as an exposure to the banking and financial services sector.

This has cleared confusion over sector-wise limits that an insurance company is mandated to abide by.

Private sector lenders generally dominate the market of infrastructure bonds. Punjab National Bank had sold such bonds in 2015, but state-run banks are rare in the issuances of these instruments.

ICRA and India Ratings have graded Bank of Baroda’s infra bonds with a triple-A ranking and a ‘stable’ outlook.

While Bank of Baroda’s improved profitability in FY2022 was supported by one-off reversals of provisions and recoveries on certain large corporate exposures, the overall profitability remains on an improving trajectory, ICRA said in a note issued last week.

The government is the largest shareholder of Bank of Baroda with a 63.97% equity stake as on March 31, 2022. It had infused Rs 21,739 crore in the bank between FY2018 and FY2020.

Bank of Baroda is the second largest state-run bank in India based on assets, with a market share of 6.7% in loans and 6.5% in deposits as on March 31, 2022, according to ICRA.

The bank has plans to raise additional tier-1 bonds of about Rs 2,500-3,500 crore, dealers said. These debt papers will help bolster the capital base.

Bank of Baroda shares have gained 51% this calendar year, outpacing the broader sector barometer BSE Bankex that has added nearly 7%.