The State Bank of India (SBI) has successfully raised Rs. 10,000 crore through its third infrastructure bond issuance, with a coupon rate of 7.54 per cent. The bidding process for the 15-year tenor bonds occurred on July 31, 2023.
Infrastructure bonds are financial instruments that are designed to raise long-term capital for the specific purpose of funding large-scale infrastructure projects that require significant investment. Both individuals and institutional investors have the ability to make contributions towards the advancement of essential infrastructure and provide support to the broader economy by making investments in infrastructure bonds. The bond features a pre-established coupon rate, which denotes the interest rate that is regularly disbursed to bondholders, usually on an annual or semi-annual schedule.
The SBI provided bonds with an interest rate that was marginally superior to the interest rate offered by conventional government bonds. The issuance of the bonds occurred with a spread of 13 basis points (bps) above the prevailing rates of government bonds.
The bank received bids of Rs. 21,698 crores, which is 4.34 times the base issue size, indicating a significant level of demand for these financial instruments. The investors include a wide variety of sectors, including provident funds, pension funds, insurance companies, mutual funds, corporations, and other entities.
The funds received shall be used to enhance long-term resources for financing essential infrastructure projects and assisting the affordable housing sector.
The issuance of Long-Term Bonds, despite the increase in yields, will assist the bank in providing long-term loans for infrastructure projects. It may also assist in the development of a long-term bond curve and encourage other banks to issue long-term bonds.