The deal also marks the first international debt offering by UTI Bank. UTI is also the first Indian bank to issue bank capital instruments off of an EMTN program.
Pricing followed three days of roadshows and one-on-one meetings and comes at the tight end of guidance. Roadshow were held in Hong Kong, Singapore and London early last week with an initial guidance of 175bp to 200bp over US mid-swap rate. That was then revised to 175bp to 185bp over later in the week.
The Baa3/BB- rated deal priced at 99.839% on a coupon of 7.25%, equivalent to a spread of 231.5bp over the 10-year US Treasury, or a yield of 7.273%. If the notes are not redeemed after 10 years, the coupon steps up to 331.5bp over the then current five-year US Treasury.
The books closed a massive 6-times oversubscribed with a total of 70 accounts amassing $1 billion in aggregate orders. In terms of multiples, it is one of the largest order books for an Indian transaction in recent times. ICICI Bank, at $1.5 billion, was a larger order book however that deal was for $500 million.
Geographically the notes were sold down primarily to Asian-based investors, who took up 54% of the book. Europe bought 42% of the deal with offshore US accounts taking 4%.
By account type, fund managers bought 68%, banks took 20%, and the remaining 12% went to retail investors.
The deal initiates the market for Indian regulatory capital and will now be used as the primary benchmark for other Indian banks looking to take advantage of the rule moderation.
With the cost of borrowing overseas cheaper than tapping the domestic market, bankers are estimating upwards of $1 billion worth of deals are now in the queue to issue. The State Bank of India, ICICI Bank, HDFC Bank, and Bank of India are expected to be among the issuers ready to take advantage of the relaxation and approach overseas markets.
However, how viable a benchmark the new deal will provide remains to be seen.
Regulatory capital deals that have been issued in the rupee-denominated market since the Reserve Bank of India (RBI) began permitting them last year have met with varied success and are limited by a relatively narrow investor base which obstructs issuers from offering larger transactions.
In order to give the domestic banks more options to raise capital to meet both their business needs and Basel II capital adequacy standards, the RBI amended guidelines making it easier for banks to augment their capital by issuing foreign currency debt and hybrid instruments.
It is a further relaxation from existing guidelines that were outlined on January 25. Previously banks could issue such instruments in Indian rupees but were required to obtain RBI approval on a case-by-case basis for an issue in foreign currency.
Now banks are allowed to issue innovative perpetual debt instruments in foreign currency up to 49% of the eligible 15% of their Tier I capital without prior RBI permission. They may also issue upper Tier II Instruments in foreign currency up to 25% of their unimpaired Tier I capital without prior approval, subject to compliance with certain specified conditions.
UTI will use the proceeds to strengthen its tier 2 capital position in order to meet increasing loan demand. UTI is looking to raise around $200 million in off-shore debt.
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