BoB raises Rs 10,000 crore via green infra bonds

Mumbai: Bank of Baroda (BoB) has raised ‘10,000 crore by issuing a 7-year green infra bond, the first of its kind for the public sector lender, aimed at financing renewable energy projects. The bonds were priced at 7.10% and bought by large domestic institutional investors, people familiar with the details said.

“The bank had planned to raise ‘5,000 crore as initial issue and another ‘5,000 crore as a green shoe depending on the demand. The bank received bids totalling ‘16,000 crore for the seven-year issue allowing it to fulfil its target of ‘10,000 crore,” said a person familiar with the details. A BoB spokesperson did not reply to an email seeking comment.

This is the first of its kind domestic green bond issuance by any public or private sector bank in India. The bond proceeds will be used to finance renewable energy projects including wind, solar, hydro and bioenergy. It will also be used to fund energy efficient infra projects.

“The bank has already identified the projects for which these funds will be deployed. This is the first time the bank has raised funds from the infra bonds and investors were already lined up and the bank went ahead with the issue despite the market volatilities,” said the person cited above. The issue was subscribed by long term investors like life insurance companies, pension and provident funds. ET could not ascertain the names of the investors. Rating agencies Care and ICRA had assigned a AAA rating for the bond, due to the majority ownership of the government in the bank, comfortable capital book, diversified advances book and improvement in profitability. This is the first infra bond issuance by BoB this year. The state-owned bank had raised ‘5,000 crore through ten-year infrastructure bonds at a coupon rate of 7.23% in January last year.

SIDBI withdraws issue

Even as BoB completed its fund raise, another government owned issuer SIDBI scrapped its proposed bond issuance to raise a total of ‘8,000 core due to a mismatch between issuer expectations and investor demand in the shorter end of the bond market.

SIDBI had planned to raise ‘2,000 crore with a greenshoe option of ‘6,000 crore through NCDs with a maturity of about 3 years 4 months. A bid document seen by ET showed that investors had expected a yield of 7.27% for the minimum of ‘2,000 crore SIDBI wanted to raise which was higher than the 7.10% three-year bond issued by its peer NABARD in February 27.

“This withdrawal is quite rare, as SIDBI generally proceeds with its bond issuances. This episode indicates that investor appetite is currently weaker for short tenor AAA instruments, when issuers expect fine pricing. In contrast, long-duration high-quality bonds continue to attract strong demand from large institutional investors such as pension funds and insurance companies that prefer locking into longer-tenor assets to meet regulatory investment requirements,” said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap LLP.