Adani Transmission received a strong reception for its debut dollar bond on Thursday, continuing a run of well-received deals from the sub-continent.
Strong inflows into emerging market funds, a shortage of Indian paper in the primary and secondary markets, plus the right credit fundamentals were the three magic ingredients that pushed the order book to a peak of $5 billion before the US opened.
Syndicate bankers said there were few dropouts or much scaling back after final guidance was released and indicative pricing was tightened from 290bp to between 260bp and 265bp over Treasuries. The final order book closed at $5.1 billion.
Final pricing for a $500 million Reg S/144a 10-year deal was fixed at 99.081% on a coupon of 4% to yield 4.33% or 260bp over Treasuries.
A total of 284 accounts participated, with a split of Asia 45%, US 28% and Europe 27%. By investor type, fund managers took 84%, bank and private banks 11% and insurers and sovereign wealth funds the remaining 5%.
"This bond benefited from the three I's: India, investment grade and infrastructure-related. It could have been priced tighter than it was based on the huge demand it generated," one syndicate banker commented.
Every recent deal from India has performed well. The latest, a $200 million issue by BB/BB rated Glenmark Pharmaceuticals on Monday, was trading above its par issue price on a mid-price of 100.384% on Thursday despite extremely aggressive pricing relative to other BB rated Indian benchmarks.
Ironically, demand for Adani Transmission may have been partly spurred by the poor trading performance of sister company Adani Ports and Special Economic Zone, which has underperformed much of the rest of the Indian investment grade universe over the past seven months.
It has the same Baa3/BBB-/BBB- rating as Adani Transmission but was placed on negative outlook by both Moody's and Standard & Poor's in May after revenues came in lower than analysts expected and leverage unexpectedly increased.
It provided the main pricing benchmark for Adani Transmission and investors may conclude it set a cheap one, although it is now trading back above issue price after hitting a year-to-date low of 98.56% in May. On Thursday the 3.5% July 2020 deal was trading at 245bp on a G-spread basis, or a mid-price of 100.09%.
Fixed-income analysts calculated fair value for a new 10-year Adani Ports deal around the 293bp level. This is based on NTPC Corp's 2021 to 2026 curve, which is worth 40bp, or 8bp per annum.
On this basis, Adani Transmission has priced 3bp through its sister company. However, it is on stable outlook from all three ratings agencies, which highlighted its stable cash flow and favourable regulatory environment in their rating assessments. Its assets have a weighted average remaining life of 21 years.
Bankers also flagged the covenants package, which was designed to protect investors against debt-funded capex, acquisitions and transfers between group companies. Specifically, this includes a debt service coverage ratio above 1.1 times, an operating account waterfall, ring-fenced obligor group, senior debt redemption account with cash sweep mechanism and limitations on transfers to distribution accounts.
Adani Transmission is one of India's largest private sector power companies, with 5,000 circuit kilometres of transmission lines in operation and a further 1,650 under construction. It was split off from its parent in January 2015 and is now separately listed on the National and Bombay Stock Exchange.
Better-known public sector comparables such as Power Grid Corp are trading at much tighter levels. The BBB-/BBB- rated credit has a 3.875% January 2023 bond trading around the 170bp level on a G-spread basis.
However, Adani has become a well-known brand in India and is set to become a regular issuer in the international capital markets. It was one of the first companies to declare its interest in the Masala bond market (offshore rupee-denominated debt) and roadshowed a prospective deal earlier this year via Bank of America Merrill Lynch, Barclays, MUFG and Standard Chartered.
This previous roadshow enabled the company to jump into the dollar market quickly this week without having to do a roadshow to introduce investors to its credit first.
"We only announced the deal on Tuesday," one banker commented. "Market momentum is strong and the company wanted to take advantage of it. The summer break is almost upon us and Adani will soon enter the blackout period for its results so this seemed like the perfect opportunity."
Earlier this week, the company also announced it had signed an agreement with Credit Suisse for a $75 million equivalent five-year private placement Masala bond with a 9.1% coupon. Even if the coupon is grossed up to account for the country's 5% withholding tax, this still represents cheaper funding than an equivalent onshore bond, which carries a 10.25% coupon and is trading at par.
HDFC completed the country's first Masala bond in mid-July, with Credit Suisse one of the three leads.