Asia’s dollar bond market was off to another busy start on Monday, with Axis Bank, acting through its Dubai Financial Centre branch, launching a $500 million five-and-a-half-year bond early in the morning — the first dollar bond from an Indian bank in nearly nine months.
According to Dealogic data, the last dollar bond issued by an Indian bank was State Bank of India’s $50 million two-year bond, issued through its London branch in June last year through J.P. Morgan.
Barclays Capital, Citi, HSBC, J.P. Morgan and Standard Chartered were joint bookrunners for Axis Bank’s latest senior bond. The initial guidance was released at the area of Treasuries plus 450bp on Monday and the notes came at Treasuries plus 440bp, 10bp inside the initial guidance.
On Monday afternoon, the bank’s outstanding bonds had sold off in response to the news of a deal. According to one Hong Kong based-trader, the initial guidance looked “fair” after the sell-off.
“We’ve seen the existing bonds — namely the Axis Bank 2016s and 2015s — widen about 15bp in response to the deal announcement,” the trader said. “The Axis Bank 2016s have widened from Treasuries plus 395bp to 410bp. There is a big pipeline of Indian banks waiting to tap the market to fund offshore loan growth and a cautious outlook on India.”
The deal gathered an orderbook of $1.75 billion from 170 investors. According to one person familiar with the deal, private-sector lender Axis Bank has re-opened the market for Indian banks and the deal came with a new issue premium of about 9bp. The bonds traded around reoffer in secondary Tuesday noon.
Asian investors were allocated 57%, European investors 18%, US investors 17% and Middle Eastern investors 8%. Fund managers took 35%, banks 30%, private banks 27% and insurers 8%. The coupon was fixed at 5.125% and the notes reoffered at 99.442 to yield 5.243% to September 5, 2017.
Elsewhere, according to an investor, Thai lender Siam Commercial Bank (SCB) has been meeting with investors through Citi as the arranger. SCB had last tapped the market in May last year with a $400 million five-and-a-half-year bond arranged by Barclays Capital and Deutsche Bank.
Thai state-owned oil-and-gas company PTT is also rumoured to be considering a return to the dollar market — with some suggesting that the strong investor response to Reliance Industries bond (also in the oil-and-gas sector) may encourage PTT to tap the market. In Indonesia, Berau Coal has mandated Bank of America Merrill Lynch, Credit Suisse and J.P. Morgan to arrange investor meetings that kick off in Asia, London and the US on February 29.
However, as companies are expected to post their full-year results in coming weeks, they will soon enter into so-called black-out periods (during which time they are unable to discuss their financials), so there could be a momentary pause to investor meetings.
Local currency markets are also active. Genting Singapore is poised to tap the Singapore dollar market with a benchmark-size perpetual this week. Roadshows will conclude in Hong Kong on Wednesday. Genting Singapore is listed in Singapore and is best known for its flagship project Resorts World Sentosa.
DBS and HSBC are global coordinators and joint bookrunners, while CIMB, Deutsche Bank and J.P. Morgan are joint bookrunners. The perpetual bonds, which are callable after the fifth year, are rated BBB- by Fitch and Baa3 by Moody’s, two notches below the issuer rating. There is no rate reset and there is a 100bp step at the 10th year. If the bonds are not called at the fifth year, they lose all equity credit from Fitch, which incentivises the borrower to call the bonds.
“Genting Singapore’s perpetual is structured to receive 50% equity credit from both Moody’s and Fitch and equity accounting under international accounting standards,” said Sean McNelis, head of financing solutions group for Asia-Pacific at HSBC. “The structure incorporates no replacement capital covenants, either binding or otherwise, thereby maximising the capital structure flexibility for the company. The perpetual is also rated by both agencies in order to attract demand from both institutional investors and private banks.”
Replacement capital covenants require an issuer that is calling its hybrid to replace it with a new issue that has similar equity content. However, it is a methodology that only applies to hybrids rated by Standard & Poor’s — and Genting’s issue is not rated by S&P.
Genting Singapore has little debt outstanding but analysts say that the company is looking at a number of sizeable investments outside of Singapore. While the Singapore dollar market is not as deep or liquid as the US dollar market, it has nonetheless proven to be a market open to hybrid structures. Late last week, Singapore Post priced a S$350 million ($278 million) perpetual at a yield of 4.25% via sole bookunner DBS. SingPost’s perpetual is said to be a comparable for Genting, along with Cheung Kong Holdings’ perpetual, which is yielding 5.18%.
