Axis Bank defers $500 mn bond sale

MUMBAI: Axis Bank Ltd has deferred a $500-million bond sale after international investors expressed concerns about the health of India’s banking system in the wake of the $2-billion fraud at Punjab National Bank (PNB), two people aware of the development said. The bonds were due for placement on February 19.

The bank, India’s third largest private sector lender, is yet to decide on a fresh issue date for the senior unsecured notes with a tenor of 5.5 years and a coupon of around 3.25%, the people cited above said on condition of anonymity.

“The Nirav Modi saga has caused concerns among the international investor community with respect to the overall health of banks in India, since the impact of the fraud is not fully understood yet,” said one of the two people cited earlier.

“Accordingly, some investors have sought additional details pertaining to any contingent liability that may occur.”

“However, Axis Bank is working to address investor concerns and plans the bond issue in coming weeks,” the second person cited earlier said.

“The Nirav Modi and Rotomac scams have soured the sentiment of global investors visà-vis Indian banks and widened the trading spreads of existing bonds. This has pushed back any new issuance, till investors come to grips with the extent of provisioning losses suffered by the banks. Furthermore, the rise in the yields on US treasuries and the outcome of the FOMC meeting, coupled with the Chinese New Year break, paused issuance momentum,” said Nachiket Naik, managing director at IREP Credit Capital, a Mumbai-based non-banking financial company.

An Axis Bank spokesperson said in an email, “Axis Bank evaluates various opportunities on a continuous basis and the bank as a matter of policy does not comment on market speculation.”

In its first information report (FIR) filed with the Central Bureau of Investigation (CBI) on January 31, PNB had named the Hong Kong branches of Axis Bank and Allahabad Bank, which had received the fraudulent letters of undertaking (Lous) against which both banks had released payments.

In a February 15 regulatory filing, Axis Bank, however, said it had “sold down all the buyers’ credit transactions” undertaken by its Hong Kong branch with Punjab National Bank.

Buyers’ credit is a loan extended by a bank to an importer to finance imports. Axis Bank had clarified that in the normal course of business, it undertakes transactions against Lous issued by other banks through its overseas branches.

The private sector bank said it has undertaken such transactions in the past with PNB against their authenticated SWIFT Lous.