Union Bank of India has accepted bids worth $600 million for a public sale of US dollar-denominated bonds through its Dubai branch. According to merchant bankers and a notice filed to stock exchanges, this marks the bank's first such issuance in more than 12 years.
The lender raised $300 million each through three-year and five-year papers, carrying coupons of 5.23 percent and 5.4170 percent, respectively. The three-year bonds were priced at 93 basis points above US Treasuries, while the five-year tenor was priced at 102 basis points above Treasuries. These pricing levels came in sharply below the bank's initial guidance of 120 basis points and 130 basis points.
With this transaction, Union Bank of India becomes the third state-run bank to tap the dollar debt market through the public route since June. This activity follows an announcement by the central bank regarding a discounted hedging facility that lowers the cost of borrowing for financial institutions.
Other major Indian financial institutions have also accessed offshore markets during this period. State Bank of India and Bank of Baroda have raised $500 million and $700 million, respectively, through public sales, with the State Bank of India also adding $600 million through a private route. Additionally, IDFC First Bank raised $350 million through a private placement of five-year securities via its GIFT City branch, following a separate $600 million three-year debt raise a week prior.
Indian lenders have been actively working to complete their dollar issuances due to regulatory timelines. A significant portion of these funds is being utilized to provide leverage to customers who will deposit them under the Reserve Bank of India's discounted dollar deposit scheme.
The Reserve Bank of India announced earlier this month that the window provided to banks for hedging non-resident deposits would end a month early, on August 31. This shortened timeframe has driven a wave of offshore fundraising, resulting in Indian lenders raising a total of $11.25 billion through bond issuances between June and August.
"The return of Union Bank of India to the dollar debt market after twelve years highlights a broader trend of increased offshore fundraising by Indian lenders. The rush to complete these issuances before the Reserve Bank of India concludes its discounted hedging facility on August 31 demonstrates how regulatory timelines directly influence capital market strategies in the banking sector. Financial institutions are clearly utilizing these cost-effective mechanisms to manage liquidity and support customer deposit schemes." — Dr. Shishir Gupta, Founder & CEO, StartupLanes
