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India's highest rated private sector borrower returned to the international bond markets on Wednesday with a $1 billion unsecured 144a bond that attracted a global order book of $4.5 billion and 272 accounts.
Reliance Industries priced a 10-year Baa2/BBB+ rated deal during New York trading hours at 99.998% on a coupon of 4.125% to yield 4.249% or 240bp over 10-year Treasuries.
This marked the tight end of final guidance of five basis points either side of 245bp over Treasuries and initial guidance around the 265bp level.
Allocations were split 44% US, 31% Asia and 25% Europe, with fund managers picking up 62%, insurance and pension funds 18%, banks 10%, sovereign agencies 7% and private banking 3%.
Mukesh Ambani's oil-to-retail conglomerate, India's largest private sector company, paid a roughly 10bp new issue premium for the deal, a reflection of soft secondary markets and pressure on oil-related names.
The group's outstanding 5.4% February 2022 bonds were bid at 202bp over 10-year Treasuries at the time of pricing. The new paper has, therefore, come 38bp over secondary levels without accounting for the additional three years on the curve.
Since the beginning of the year, Reliance's 2022 bonds have widened 24bp but outperformed other oil-related Indian names and the company's own five-year paper. Its 4.5% 2020 issue, for example, is currently bid at 205bp over Treasuries, 56bp wider than the beginning of the year.
ONGC and Oil India have both widened about 26bp to 27bp over the same period. They each have the same Baa2 rating as Reliance but ONGC has a two notch lower rating of BBB- from Standard & Poor's.
ONGC's 4.625% July 2024 bonds are currently bid 243bp over 10-Treasuries. This means Reliance has paid a 3bp premium for a one-year pick up despite much stronger credit fundamentals.
Some credit analysts have pointed out that Indian names are still trading at relatively tight levels compared to comparable Chinese credits. There is currently a 47bp differential between Reliance's February 2022 bonds and Aa3/AA- rated Sinopec's May 2022 bonds, for example.
The latter also has an April 2024 bond outstanding, which was bid yesterday at 173bp over Treasuries, 67bp tighter than Reliance's new bond.
In a recent credit report, Deutsche Bank argued that Reliance's credit profile is likely to weaken over the coming two years as the company ramps up its investment cycle. However, the bank does not believe the rating agencies will move against it.
"We expect the weaker metrics over the coming 12-18 months to be tolerated by the rating agencies given management's track record in executing large scale projects," it wrote. "Reliance will also likely emerge a stronger credit at the end of the investment cycle with enhanced scale and earnings diversity."
The company reported third-quarter FY2015 earnings last week, which showed that net debt to Ebitda had risen to 0.33 times, compared to 0.04 times at the end of the 2014 financial year. Gross debt was reported at INL1.5 trillion against liquid assets of INL787 billion.
Declining crude oil prices hit the company's financials, with revenue down 15% and Ebitda down 7% quarter-on-quarter.
Global co-ordinators for the new bond deal were Bank of America Merrill Lynch, Citigroup, HSBC and Standard Chartered. Active bookrunners were Barclays, Deutsche Bank, JP Morgan and Morgan Stanley, while passive bookrunners were ANZ, BNP Paribas, Credit Agricole and RBS.
