ICICI Bank returned to the dollar market for the first time since August 2004 on Wednesday (November 9), with an increased $500 million bond offering via Deutsche Bank and Merrill Lynch. The five-year deal priced through the bank's own implied curve and at a much narrower premium to the State Bank of India (SBI) than would normally have been expected.
Pricing of the Baa3/BB+ rated deal was completed during the New York afternoon following a volatile day in the Treasury market. Pricing was fixed at 99.572% on a coupon of 5.75% to yield 5.85%. This equated to 130bp over Treasuries, or 79bp over Libor.
ICICI Bank has two dollar bonds outstanding that provided the main benchmarks. An October 2008 deal was trading at 60bp over Libor, while an August 2009 deal was trading at 71bp over.
Based on these two trading levels, specialists calculate that the curve between an August 2009 and a November 2010 bond would be worth about 13bp, meaning ICICI Bank should have priced in the mid 80bp area.
The deal also looks aggressive relative to SBI, which is considered the sovereign proxy and pierces the sovereign ceiling with a Baa2 rating from Moody's. SBI's December 2009 bond was trading around 63bp over Libor at the time ICICI Bank priced. Based on ICICI's curve, a new SBI deal would probably print in the mid to low 70bp area.
This means ICICI Bank priced at a 4bp to 5bp premium to SBI, whereas it typically trades about 10bp wider in the secondary market.
The main reason why it was able to ratchet pricing in so tightly is that it shunned its normal Asian bank investor base in favour of US institutions. ICICI bank completed a non-deal roadshow in the US during the third quarter and was keen to target a new investor base at a time when it knew it could do so more cheaply than usual. This is principally because the bank also has an ADR in the market and the bond deal could share some documentation with it, bringing down the bank's overall issuance costs.
About 47% of the deal was placed into the US, while 23% went to Singapore, 18% to Europe, 8% to Hong Kong and 4% to other Asia. By investor type, funds took 47%, insurance companies and pension funds 28%, banks 22% and retail 3%.
The order book is said to have closed at the $1.4 billion mark with participation from 100 accounts, of which 40 were new to the credit. Strong US demand is also the main reason why the deal was upsized from initial guidance around the $300 million level.
Having underallocated Asian investors, ICICI was also able to generate follow-through buying in the secondary market, which underpinned the aggressive launch spread. Specialists also say that a number of players on the street ended up having to buy bonds in the secondary market to cover short positions they had placed in a belief the deal would trade down because it was too aggressive.
At the end of Asia's trading yesterday, it was said to be up a point to a point and a half.
