Punjab National Bank (PNB) is preparing to enter the overseas debt market with its first dollar bond issue. The state-run lender is targeting at least $500 million through a five-year bond sale. It could raise up to $1 billion if market conditions improve and investor demand remains strong.
The proposed dollar bond issue comes as Indian banks seek cheaper overseas funding under a special hedging facility introduced by the Reserve Bank of India (RBI). However, a recent rise in US Treasury yields may have delayed PNB's fundraising plans.
According to two merchant bankers who spoke to Reuters on Friday, the lender is expected to approach the dollar debt market in the coming weeks. They requested anonymity because the matter remains private. PNB did not respond to Reuters' request for comment outside business hours.
Key Highlights
- Fundraising target: PNB is considering raising at least $500 million, with the potential to reach $1 billion.
- Market timing: A sudden increase in US Treasury yields may have delayed the bank's original fundraising schedule.
- RBI support: The discounted swap window aims to reduce the cost of hedging currency risks for eligible overseas borrowing.
PNB Awaits Favorable Market Conditions for Bond Sale
PNB had initially planned to enter the dollar debt market in late September or early October. However, the sudden rise in Treasury yields may have prompted the lender to postpone the exercise, one of the merchant bankers told Reuters.
Higher US Treasury yields can influence borrowing costs for overseas bond issuers. For Indian banks raising funds in dollars, pricing also depends on investor demand, credit ratings, and currency hedging expenses. In September, PNB filed a $1.5 billion medium-term note (MTN) program. Such a program provides a framework for issuing debt securities and is often established before a company begins fundraising.
The bank's proposed five-year bonds have received ratings of Baa3 from Moody's and BBB- from Fitch Ratings, in line with the lender's issuer ratings. These ratings place the notes at the lower end of investment-grade territory. The final size and timing of the dollar bond issue will depend on market conditions and the pricing investors are willing to accept.
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RBI's Discounted Swap Window Attracts Indian Banks
The proposed bond sale falls under the RBI's discounted swap window, which allows eligible banks and state-run companies to raise funds overseas while accessing a subsidized hedging facility. The scheme has been available since June and is scheduled to remain open until the end of December.
Currency hedging helps borrowers manage the risk of exchange-rate movements when they raise debt in foreign currencies. By reducing hedging costs, the RBI's facility aims to make overseas fundraising more affordable for eligible borrowers.
PNB is not the only state-run lender exploring this route. Canara Bank is also looking to enter the dollar debt market under the scheme. Indian lenders have already raised around $13 billion through dollar bonds since the RBI announced the discounted scheme. Five state-run banks have collectively raised $3.5 billion through a combination of private placements and public bond offerings.
State Bank of India, Bank of Baroda, Union Bank of India, and Bank of Maharashtra are among the public-sector lenders that have used this route to access overseas funding. PNB's planned offering would add to this fundraising activity. However, its final borrowing amount will depend on market conditions, investor appetite, and the cost of issuing and hedging the bonds.
