Additional Tier-1 bonds (AT 1)

Additional Tier 1 bonds (AT 1)

Recently State Bank of India (SBI) in an announcement on September 3, 2021, said that it has raised Rs 4,000 crore through Additional Tier 1 (AT1) bonds.

Key Points

  • AT1 bonds were raised at a coupon rate of 7.72 percent.
  • This is the first such issue in the domestic market after the Securities and Exchange Board of India (SEBI) notified the new rules.
  • State Bank of India enjoys AAA credit rating from local credit agencies while the AT1 offering is rated AA+. This is the highest rating in India for such devices.
  • State Bank of India became the first lender to raise capital through offshore AT1 bonds in 2016.

Securities and Exchange Board of India (SEBI) Rules

SEBI amended the 100-year valuation rule for perpetual bonds in March 2021. Under the new rules, the residual maturity period of Basel III AT-1 bonds will be ten years till March 31, 2022. As per the new rules, with effect from April 2023, the remaining maturity of AT-1 bonds will be 100 years from the date of issue of these bonds.

AT-1 bond

The AT1 bond is also called a ‘perpetual bond’. They have no maturity date, but they do have a call option. The issuer of these bonds can call or redeem the bond if they are getting the money at a cheaper rate, especially when interest rates are falling.

Source – The Hindu

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