ICICI Bank to raise Rs.8,000 crore via Infrastructure Bonds

It looks like there is going to be a rush for raising money via bonds ahead of the expected rate hikes by the Fed. Already there are apprehensions that the RBI may also rate repo rates to offset the impact of sharply higher inflation due to rising crude oil prices. While 3 road builders are already in the fray, one of the foremost private sector banks, ICICI Bank, is planning to raise up to Rs.8,000 crore through the issue of infrastructure bonds.

ICICI Bank plans to use the funds so raised to bankroll and finance projects in sectors like transport, power and affordable housing, all of which qualify for raising monies through infrastructure bonds. While it is not clear if the money will be raised in one go or in tranches, CRISIL has already assigned “AAA/Stable” rating for Rs.10,000 crore of bonds, which have already been approved by the board of directors of ICICI Bank.

The structure of the issue will be rather tail-heavy. The issue size will be worth Rs.500 crore while ICICI Bank will also have a Greenshoe option to retail oversubscription to the tune of Rs.7,500 crore. This will take the total size of the ICICI Bank bond issue to Rs.8,000 crore.

The bonds will have a tenure of 10 years and being infrastructure bonds, the individuals investing in these bonds will have the benefit of Section 80CCF of the Income Tax Act.

The coupon rate is not yet been fixed but typically considering its superior rating and the tenure of 10 years for the bonds, the peer group coupon would be in the range of 7.25% to 7.30%.

This would be an attractive rate because it is just above the yield to maturity at which the benchmark 10 year government bonds are trading. However, many bond dealers are unsure of the coupons considering the volatility in bond markets recently.

ICICI Bank already has an infrastructure exposure comprising of road, ports, telecom, urban development and other infrastructure to the tune of Rs.48,981 crore as of the close of FY21.

What is interesting is that the funds raised by the bank through the infrastructure bond route are exempt from liquidity requirement norms pertaining to Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). That is because funds will be deployed in infrastructure.

There are expectations of a slew of such infrastructure considering that government will need close to Rs.111 trillion over the next five years to just sustain the pace of infrastructure development in India.

According to CRISIL, this investment in infrastructure is vital as it has the potential to building the much needed infrastructure, reduce the cost of doing business, improving the competitiveness of Indian business and creating jobs. 

Over the last two years, the government allowed its fiscal targets to go off tangent just to support infrastructure in the midst of the pandemic.

However, it may not have that luxury in this year. As a result, greater dependence will be on the private sector to take the initiative and come up with structures to fund infrastructure. Needless to say, only the bond market has the potential to contribute substantially to the bankrolling of infrastructure projects.