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In still supportive bond markets, NTPC launched a well-received 10-year $500 million issue on Monday. The transaction came just a few weeks after one of India’s worst electricity crises, when blackouts covered large swathes of the north and east of the country in early August.
NTPC intends to use the proceeds of the bond issue to fund its current and new capital expenditure in the power sector, including the development of coalmines to help secure fuel supplies.
The company met with investors in Hong Kong on 13 and September 14, and chose to launch a deal at the beginning of this week after a favourable ruling on September 21 that reduced withholding taxes for overseas borrowing by Indian firms from 25% to 5%.
The bonds pay a 4.75% semi-annual coupon and were reoffered at 99.89, yielding 4.764% to a maturity date of October 3, 2022. That was equivalent to 305bp over the US treasury benchmark yield.
Initial price guidance on Monday morning was at a spread of 325bp, which translated into a curve-adjusted new issue premium of 5bp compared to NTPC’s seasoned 5.625% 2021 dollar issue. Momentum for the transaction soon escalated, according to bankers familiar with the launch, and it was oversubscribed within one-and-a-half hours.
By the end of Asia’s trading day, the deal was more than eight times subscribed and guidance was tightened to 305bp to 310bp. It finally priced at 305bp, representing a 10bp negative new-issue concession. In trading on Tuesday, the bonds were offered at 301bp.
The issue was the third drawdown since 2006 from the company’s $2 billion medium-term note programme and was sold in the Regulation S format, which excludes onshore US investors.
It attracted 215 orders worth $4.1 billion, and most of the bonds were placed in Asia (62%), while 31% went to Europe and 7% to offshore US accounts. According to bankers close to the deal, there were seven orders worth over $100 million and three over $200 million. By investor type, fund managers bought 57% of the issue, private banks 18%, commercial banks 14%, insurers and pension funds 8% and others 3%.
The senior, unsecured issue is rated BBB- by both Standard & Poor’s and Fitch, but assigned a negative outlook by each agency.
NTPC has a dominant market position, cost-competitive operations, strong cash flow measures and liquidity, and a favourable regulatory environment, according to S&P. But, its aggressive capital spending plans, the weak credit quality of its customers, fuel supply risks and concerns about the macroeconomic outlook for India offset those strengths.
The firm is a state-owned entity with 84.5% of its paid-up capital contributed by the Indian government. It is the largest power generating company in the country both in terms of installed capacity (18.5%) and generated output (27.6%). NTPC’s consolidated revenue was $13.5 billion and its after-tax profit was $1.9 billion in fiscal 2012.
S&P believes that there is a “very high” likelihood of extraordinary government support in the event of financial distress, although NTPC’s standalone credit rating might be a notch higher were there not a danger that the company might be vulnerable to negative government intervention.
Investors have a change-of-control put that will be activated if the Indian government no longer owns more than 50% of the voting securities of NTPC.
The joint bookrunners for the deal were Barclays, Citi, Deutsche Bank and Royal Bank of Scotland.
