Canara Bank
Canara bank. [Representational Image]Creative Commons/Suma

State-owned lender Canara Bank stepped in to the international bond market with a Rs 2,600 crore ($400-million) issue as part of its Rs 13 crore ($2-billion) medium term note programme.

"Canara Bank is in the international debt market with a benchmark dollar bond issue that will have a tenor of 5 years. The lender is likely to raise Rs 2,600 crore ($400 million) through the bond sale issue, which will be drawn through its London branch and will be listed on the Singapore Stock Exchange," merchant banking sources told PTI.

The Bengaluru-based bank has hit the forex debt market after a long gap. Foreign rating agency Moody's has assigned a 'Baa3' rating to the issue, which is on par with the sovereign rating since the bank is majority owned by the government.

On the 'Baa3' rating rationale, Moody's said the bank's foreign currency senior unsecured MTN debt rating is anchored on its 'Ba3' baseline credit assessment and the agency's assessment of the likelihood of a very high level of government support in a stressed situation.

Canara's BCA of Ba3 is underpinned by its weak asset quality though its gross NPA ratio is somewhat better than domestic peers, it's significantly weaker compared to Ba3 global peers, with a trend of increasing bad loans.

Similarly, the bank's provisioning levels and capital buffers are lower compared with similarly rated peers.

The draw-down will be carried out from its London branch and the bonds will be listed on the Singapore Stock Exchange.

Another international Fitch Ratings also assigned a rating of BBB- on par with the sovereign rating. The notes are likely to have a tenure of five years.