Indian Oil Corp (IOC) found a window of opportunity early yesterday morning to successfully price a $500 million 10-year bond, in spite of weak financial markets. The deal was the company’s debut 10-year international bond.
IOC conducted roadshows in Singapore, Hong Kong and London, finishing on July 20, but held off launching the deal for a few days. Global macroeconomic conditions were far from sanguine on Monday as US lawmakers failed to reach an agreement on raising the federal debt limit, prompting fears that the US could miss a debt payment, while ratings agency Moody’s had also downgraded Greece by three notches from Caa1 to Ca, sending credit spreads 3bp to 5bp wider.
Yet the leads — BNP Paribas, Citi and Royal Bank of Scotland — saw an opportunity to launch a trade and went out with guidance of Treasuries plus 275bp to 285bp for a 10-year bond. The bonds priced at the tight end of that guidance to yield 5.729%. The bonds pay a fixed coupon of 5.625% and the notes were reoffered at 99.217.
“Indian Oil Corp concluded roadshows and held back launching until they saw a window,” said one person familiar with the deal. “That was the right move. We’re advising our clients to wait for the right time, rather than immediately launching a deal after investor meetings end.”
The deal gathered an order book of about $2 billion from more than 200 investors. Asian investors were allocated 71%, European investors 25% and US offshore investors 4%. By investor type, fund managers were allocated 30%, private banks 30%, banks 27%, insurers 11%, government and others 2%.
IOC is India’s flagship national oil company and is 78.9%-owned by the Indian government. It is rated Baa3 by Moody’s and BBB- by Fitch. The closest comparable borrower is NTPC, India’s largest power-generating company, which is similarly rated but has slightly higher government ownership of 84.5%.
NTPC tapped the market with a $500 million 10-year bond earlier this month. According to one person familiar with the deal, the NTPC bonds maturing July 14, 2021 were trading at Treasuries plus 267bp while IOC was being marketed to investors, which meant that IOC’s August 2, 2021 bonds came with little new-issue premium. However, rivals said the NTPC 2021s traded closer to Treasuries plus 263bp/259bp.
Sources on the deal said that IOC’s new bonds traded tighter in the secondary markets and were quoted at Treasuries plus 269bp/273bp yesterday at noon. Rivals noted that the bonds traded as wide as Treasuries plus 280bp and as tight at Treasuries plus 262bp throughout the day.
IOC last tapped the international market in January 2010 with a $500 million five-year bond, which priced at a yield of 4.82% or 233bp over Treasuries.
In the coming weeks, debt bankers expect issuers to launch deals sporadically, as and when markets stabilise. A number of borrowers, including Indian Bank, which concluded a roadshow last week, are waiting to launch deals, but the market is only open to investment-grade borrowers for now.
