India’s Largest Bank Raises $650 Million In Inaugural Green Bond

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The largest commercial bank in the Indian subcontinent finally followed the lead of several other private sector banks in India and launched its first-ever green bond. The bond issue was not only a mega success but also lent a hand to the Indian government that is desperate to stem the falling rupee against the US dollar.

The State Bank of India successfully raised $650 million through its first-ever green bond. The bond, denominated in US dollars, is the latest among several similar issues by other Indian banks. Investors offered to pour in nearly twice the amount the bank wanted to raise. The bank reported that the final order book from investors ballooned to $1.25 billion. 

The oversubscription helped the bank to tighten the pricing of the bond, essentially the amount of interest it would be required to pay the investors at maturity of the bond. Instead of the initial coupon rate of 185 basis points over the 5-year US Treasury rate, SBI will now only pay 165 basis points over the 5-year US Treasury rate. For a British investors, the coupon rate will be 151 basis points over 3 LIBOR.

SBI received orders from 114 accounts for the bond issue. 52% of these accounts were located in Asia while 45% were located in Europe and West Asia. Banks were the largest group, accounting for 41% of the participants, followed by fund managers (30%), insurance companies (17%), private banks (8%), and public sector entities (4%).

The bond issue conformed to the Climate Bonds Framework and was certified by the Climate Bonds Initiative. KPMG provided the independent limited assurance for the bond issue.

Last year, SBI announced plans to raise as much as $3 billion through green bonds. Thus, the bank can be expected to launch similar bond issues in the near future. While the bank has not explicitly mentioned how it plans to use the $650 million it has just raised, SBI remains a major lender to solar and wind energy projects in India. With a massive volume of capacity scheduled to be auctioned by the central and state governments by the end of 2020, SBI will have ample opportunity to lend to renewable energy project developers.

While India’s public sector banks have been laggards in the issuance of green bonds, private sector banks have been far more aggressive in raising funds through green bonds. Yes Bank has raised several millions of dollars through multiple green bond issues, while Axis Bank, too, has issued green bonds. The first green bond in India was issued by the Export Import Bank.

Independent power producers including Greenko Energy Holdings, ReNew Power Ventures, Azure Power, and CLP India have also raised funding through green bond. The Indian government has mandated several public sector companies to issue green bonds in order to finance large-scale solar and wind energy projects in the country.

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