Bank of Baroda issues debut dollar bond

The fourth largest bank in India prices at the mid-range of revised guidance, but recent diverging market performance makes secondary trading hard to predict.
Bank of BarodaÆs Reg-S $300 million subordinated upper tier-2, 15-year non-call-10 bond (rated Baa2/BB) built a $900 million order book and priced at 147bp over mid-swaps (200bp over Treasuries). Pricing is equivalent to 145bp over Libor on an asset-swap basis.

Barclays, Citi and Deutsche Bank managed the deal.

The transaction, which closed with a coupon of 6.625%, includes a step-up of 247bp over six-month Libor if not called. Redemption requires the prior approval of the Reserve Bank of India.

After a roadshow in Singapore, Hong Kong and London, 62 investors decided to participate in the transaction, with bookrunners allocating 64% of the bonds to Asia, 31% to Europe, and 5% to US offshore. In terms of investment type, 23% of the bonds were sold to banks, 63% to funds and asset managers, 7% to insurance companies, and 7% to retail.

Comparables include CanaraÆs October 2016s, which are trading at 141bp over Libor, Bank of IndiaÆs September 2016s which are trading at 142bp over Libor, and UTIÆs August 2016s which are trading at 147bp over Libor.

Some investors told FinanceAsia that pricing wider at 148bp over mid-swaps would have fairly reflected the new issue premium, and compensated for the glut of Indian paper currently on the market. Others were unsure as to how well the bonds would trade on the secondary market. Market commentators say that India is the most underperforming country in Asia (Thailand aside) due to the weight of issuance. The fact that most Indian banks all price within the same ball-park also makes the paper difficult to clear.

Further, some believe a softer market is looming which, again, would affect the bonds at re-offer. However, such is the divergence in markets that it is hard to predict secondary performance, and it may be left to the bookrunners to support the issue. Yet according to bankers, the bonds last night had broken syndicate and tightened by 1bp to 199bp over Treasuries.

Bank of Baroda raised the funds as part of its $1.5 billion medium-term note programme. The bank will use the proceeds to meet the funding requirements of its foreign offices, including the London and Nassau branches and the bankÆs foreign subsidiaries. The transaction will also strengthen the capital base of these foreign offices with respect to the issuance of upper tier-2 subordinated notes, and allow the bank to meet its general corporate requirements.

Bank of Baroda is the fourth largest bank in India, with total assets of Rs1,309.83 billion, and a net worth of Rs83.99 billion on a stand-alone basis. With 2,708 branches in India, and a presence in 21 countries, the bank employs 38,852 and serves 28 million customers.
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