Indian bank IDBI raised a $300 million 5.5-year bond on Wednesday, printing it flat to its existing paper amid heightened market volatility as a result of upcoming Indian elections in April.
The note – the first dollar transaction from an Indian financial institution since January – also got priced before the US Federal Open Market Committee meeting, which took place overnight Asia time, beating the market sell-off that plagued Asian markets on Thursday morning.
“The fact that they move ahead of the FOMC, which caused a lot of volatility and softness overnight, is a real testament to the nimbleness of this type of borrower,” said a source close to the deal. “They also came ahead of another volatility point in the form of Indian elections.”
The US Federal Reserve chair Janet Yellen hinted on Wednesday that interest rates could start to rise in early 2015. She made the remarks after the Fed said it will scale back bond purchases by a further $10 billion per month, bringing its monthly bond-buying programme down to $55 billion.
The iTraxx Asia investment grade index has currently widened by 1bp – and up to 5bp at one point – post-FOMC meeting on Thursday morning, added the source. The benchmark 10-year yield rose 10bp to 2.77%, according to Bloomberg data.
Investors clamoured for IDBI’s notes even after the bank received a ratings downgrade from Standard & Poor’s last November to below investment grade - BB+. Bankers on the deal said the issuance was offering investors a good pickup – of approximately 5bp – compared to other similarly rated banks.
“It’s the cheapest bank that you can buy because of the S&P rating,” said another source close to the deal.
IDBI’s bond received a whopping order book of more than $2 billion from more than 196 accounts, according to a term sheet seen by FinanceAsia. Quality investors subscribed to the notes, with banks accounting for 40%, fund managers 39%, private banks 15%, and insurers and others 6%.
Asian investors snapped up 77% of the bank’s paper while the rest went to Europe.
As a result of the buoyant demand for the notes, IDBI was able to tighten pricing by 20bp to price at Treasuries plus 350bp. This is flat to its existing paper, which was used as a close comparable.
Its existing January 2019 bonds were trading at Treasuries plus 330bp, which translates into a G-spread of 335bp at the time of pricing. Adding 16bp for the extra six-month extension to that indicates that fair value would come at around 350bp, highlight sources.
IDBI’s notes were fairing well in secondaries despite overall market volatility post-FOMC meeting, tightening by 5bp to Treasuries plus 345bp, add sources.
Bank of Baroda issued a $750 million bond on January 15, and was the last Indian financial institution to issue in the offshore market. Syndicate bankers expect more issuance from the space, especially post-elections in April.
“With elections on the horizon, investors are going to take a more cautious approach even though the election results may not ultimately change things,” said a Hong Kong-based head of debt capital markets. “We will get more activity after that period.”
Indian banks issued a total of $4.59 billion in the offshore bond market last year, close to 2012’s volume of $4.86 billion, according to Dealogic data.
BNP Paribas, Citi, Crédit Agricole, HSBC and Royal Bank of Scotland were joint bookrunners of IDBI’s transaction.
