Central Bank of India has decided to carry out a premature buyback of its upper tier-II bonds and innovative perpetual debt instruments (IPDIs) worth Rs 3,024 crore and sought bids from merchant bankers for conducting the process.
The bank intends to buy back an IPDI outstanding of `139.10 crore and initiate the process of buyback of other tier-II bonds after the buyback of IPDI.
“The premature buyback transaction for IPDI is envisaged to be completed in all respects latest by September 24, 2018, or earlier and in case of upper tier-II bonds latest by October 30, 2018, or earlier, as per bank discretion,” Central Bank said in a bid document dated August 9. The papers come up for redemption between 2023 and 2026.
Upper tier-II debt is perpetual in nature and coupons on them can be deferred.
“The merchant banker will advise, assist and facilitate completion of any regulatory requirement including obtaining requisite approvals and clearances, coordinate and monitor the progress of the transaction until its completion, and assist and advise the bank on any post-buyback matter pertaining to the transaction,” the bank said.
It is one of the public-sector banks (PSBs) currently under the Reserve Bank of India’s (RBI) prompt corrective action (PCA) framework. Central Bank’s move to buy back its upper tier-II bonds follows rating agency Icra’s decision to put the bank’s upper tier-II bonds programme on rating watch with developing implications (RWD).
“The ratings on the upper tier-II bonds programme were placed on RWD due to the deterioration in the capital adequacy ratios, which were below the regulatory levels,” Icra wrote in its rationale for the rating on August 7.
“Maintaining the capital ratios above regulatory levels is critical for servicing the bank’s Basel-II debt capital instruments.”
Earlier this year, at least four PSBs under PCA had decided to recall their respective additional tier-I bonds (AT-1) as trading in these instruments had almost ceased. AT-1 bonds are debt instruments that do not have a fixed maturity and, for the same reason, command a relatively higher coupon.
