Cash-rich investors continue to support a vibrant Asian primary bond market. A wide range of borrowers throughout the region, across industries and along the credit spectrum have launched deals in recent weeks. Indian banks have been among the most prominent.
On Friday, the Industrial Development Bank of India (IDBI) came to market with its first bond since 2004 ($300 million five-year issue) pricing a $350 million five-and-a-half year Reg-S security.
The notes pay a 4.75% semi-annual coupon to yield 4.762% at re-offer. The deal was sold just below par at 99.943, at a spread of 310bp over the old five-year US Treasury yield.
The notes have a maturity date of February 5, 2016 and have been assigned ratings of Baa3 by Moody's and the equivalent BBB- by Standard and Poor's.
When IDBI announced the deal, the market initially had been looking at the entire Indian banking sector to assess relative value. But, last week, investors honed in on the recent SBI $1 billion five-year deal as the comparable for the new IDBI notes.
On a Libor basis, the SBI issue was trading in the area of 268bp over swaps at the time of pricing. With the six-month extension, the re-offer price of IDBI would have converted to a swap spread of 276bp. This means that if no adjustment is made for the extension in the credit curve, IDBI achieved a funding that was about 8bp wider than SBI.
The bonds came to market on the cusp of the change-over in the US five-year Treasury yield curve --- auctions had taken place on Tuesday (July 27) and Wednesday (July 28) of last week.
The week also began with strong corporate results and a rally in the markets on the back of the European bank stress tests, which despite all the build-up, turned out to be relatively benign for the markets. This led to a strong market performance during last week's Monday and Tuesday sessions.
The bonds were last seen trading at 304bp over the new five-year Treasury in Asia on Friday. Given the spreads at pricing were quoted over the old five-year curve, there is about a 5bp difference between the two curves. Therefore a trade of 304bp in the secondaries translates to about 1bp tighter than the spread at reoffer.
With the overall market being slightly weaker on Friday, this tightening can be viewed as a fair secondary performance. The high-grade credit market in Asia last week had been flat to about 2bp to 3bp wider. And the same weakness was experienced in the Indian banking sector.
Even with this backdrop, the joint lead managers -- Barclays, BNP Paribas, HSBC, RBS and Standard Chartered -- still managed to achieve a $1.8 billion book with orders from over 210 accounts.
Regional allocation saw a fairly even distribution between Asia and Europe with 46% and 40% going into each region respectively. The bulk of the European accounts were from continental Europe. Given the notes were issued through IDBI's Dubai branch, a number of those European accounts were said to be the offices of high-grade central banks and insurance funds from the Middle East. Offshore US accounts made up 14%.
Fund managers and asset managers bought a hefty 42% of the bonds, private banks took 22% and commercial banks 21%, insurance houses, pension funds and central banks together received 12% of the allocation, and the remaining 3% went to other types of investors.
The markets remain relatively constructive in Asia despite the volatility during last week. "Overall, investors are pretty keen to deploy cash at the end of summer," said one banker. And, with liquidity sill a plus in Asia, primary market activity is likely to remain buoyant.
It is expected that this week will remain a viable window for new and returning issuers. Noble was expected to price on Friday and other borrowers within the high-yield and corporate sectors are also rumoured to be coming to market.
