PNB raises Rs 2,000 crore via AT1 capital bonds at lower rate of 8.75%

Gains from easing bond yields worldwide; better rate comes against indicative yield of 9-9.25%

Benefitting from the dip in bond yields worldwide, public sector lender Punjab National Bank has raised Rs 2,000 crore in capital through tier I bonds at a fine rate of 8.75 per cent.

Bond dealers said the paper from the public-sector lender was placed at a lower yield against an indicative rate of 9-9.25 per cent. The 8.75 per cent rate is seen as aggressive, coming mostly from the easing bond of yields worldwide last week, and tracking the fall in crude oil prices and US-Treasury yields.

According to Clearing Corporation of India data, the yield on the benchmark 10-year Government of India bond (6.54 per cent, 2032) closed at 7.37 per cent. On Friday, the closing yield on the benchmark was 7.42 per cent.

Local yields will also follow their global peers and undergo some consolidation, dealers said. US Treasury yields fell on Friday as recession fears and disappointing economic data left investors looking for safety. The yield on the benchmark 10-year Treasury Bond fell by eight basis points to trade at 2.88 per cent near its lowest level since late May, IDBI Bank said in a research note.

PNB’s board has approved a capital raising plan for 2022-23 aggregating to Rs 12,000 crore, via Basel III compliant instruments AT 1 Bonds (up to Rs 5,500 crore) and Tier-2 Bonds (up to Rs 6500 crore). It may raise funds in one or more tranches.

The Delhi-based public sector lender raised capital aggregating to Rs 7,690 crore in FY22, as against Rs 8,277 crore the previous fiscal. Of the Rs 7,690 crore raised in FY22, Rs 3,971 crore came from AT1 bonds, Rs 1,919 crore from tier-II bonds and Rs 1,800 crore from equity shares subscribed by institutional Investors.

These AT1 bonds carry “AA+” rating from Indian Ratings. The agency said in its rating commentary that PNB is a well-capitalised bank with a common equity tier-1 (CET-1) ratio of 10.56 per cent in Q4FY22 (Q4FY21: 10.62 per cent). The total capital adequacy ratio (CAR) was 14.50 per cent in Q4FY22 (Q4FY21: 14.32 per cent).

For AT1 instruments, the agency considers the discretionary component, coupon omission risk and the write-down/conversion risk as key parameters to arrive at the rating.