Punjab National Bank (PNB) on Friday entered the market for additional Tier 1 (AT1) bonds, which have witnessed a massive churn in the global markets following the bailout of Credit Suisse by UBS that led to a write-down of about $17 billion of such paper issued by Credit Suisse.
Investors are keeping a watch on the price PNB will offer following the recent turmoil. Views remain divided with some observers expecting higher rates amid the global banking stress and the Credit Suisse fallout.
Another section feels the overseas developments will not have much of an impact in India since the banking sector here is resilient.
PNB is looking to raise Basel-III compliant AT1 bonds and Tier II bonds. The base size of the issue is Rs 500 crore, with a greenshoe option of Rs 1,500 crore.
Markets expect the bonds to be priced in the range of 8.50-9 per cent.
The state-owned lender had earlier raised Rs 582 crore through these bonds at 8.40 per cent in December 2022. In July, PNB had mobilised Rs 2,000 crore at 8.75 per cent.
AT1 bonds turned controversial recently after the almost $17 billion write-down in Credit Suisse: bondholders who were suddenly left out in the cold have protested against the unilateral extinguishment of their rights.
In Credit Suisse, there was a proviso for writing off if there was a “viability event” – where the central bank had to step in and fund a bailout.
The Credit Suisse event reminded domestic participants of the Yes Bank episode in 2020: the dispute being heard by the Supreme Court.
Yes Bank has filed an appeal against an order of the Bombay High Court. The court said the administrator exceeded his powers and authority in writing off the AT1 bonds.
The division bench of the Bombay High Court had pointed out that while the draft reconstruction scheme contained the clause that AT1 bonds would be written off, the RBI made modifications to the draft scheme, as permissible under section 45(6) (b) of the Banking Regulation Act of 1949 where it deleted the clause of writing down AT1 bonds.