Bank of India prices $500 million 5.5-year bond

Six weeks after announcing its mandate, Bank of India takes advantage of stable market conditions to sell $500 million of senior fixed-rate notes. Next in line is Axis Bank, while Bank of Baroda and ICICI Bank are also expected to launch new deals soon.

Bank of India (BOI) priced a senior Reg-S $500 million deal early Thursday morning. The 5.5-year senior fixed-rate notes are rated Baa2/BBB- and will pay a 4.75% coupon. The re-offer price was set at 99.399 for a yield of 4.876%.

The bonds were issued under the bank's existing $2 billion medium-term note programme and will mature on September 30, 2015.

Initial guidance went out at US Treasuries plus 245bp. This was later revised to Treasuries plus 235bp to 240bp. In the end, the bonds were priced at the tight end of guidance at 235bp over the equivalent five-year US Treasury yield. The yield at the time of pricing was equivalent to a spread of 205bp over mid-swaps.

The five-year bonds issued by State Bank of India and Export-Import Bank of India were the key benchmarks for the new deal. At the time of pricing, Exim Bank was trading at 195bp over mid-swaps, while SBI was quoted at 185bp over. This meant that BOI came 10bp wider than Exim Bank and about 20bp wider than SBI.

At the opening of Asian trading yesterday, the BOI bonds had tightened considerably to 217bp over US Treasuries, but by late afternoon they had widened back out to 228bp over.

BOI announced the mandate for this deal on February 2, at a time when there was a high volume of new issuance in the market. BOI too was initially expected to price soon after its roadshow ended on February 8, but the bank was of the view that the market was far too volatile to successfully issue a bond at that time.

The European sovereign debt problems were a hot topic in early February, causing global markets to deteriorate dramatically. European emerging market sovereign spreads widened by about 30bp in the first week of the month and investment-grade Asian corporate spreads widened by 11bp overnight between February 4 and 5. All this volatility in the market, both in Asia and abroad resulted in Asian stocks falling to five-month lows. With that backdrop, it was clear to BOI that it was not a good time to price.

This time around, BOI was looking for a quick execution, and the sale was completed within a 12-hour window. The company was able to take advantage of stable market conditions and an investor base that was again hungry to lap up debt.

Jaideep Khanna, head of investment banking at Barclays Capital India said "there was a market window and BOI demonstrated exceptional nimbleness by acting quickly to capitalise on the strong order book to print an exceptional deal".

Within this fine window of opportunity, the lead arrangers (Barclays, Citi, Deutsche Bank, HSBC and RBS) managed to secure orders from over 300 investors and compile an order book of more than $4 billion. Asian investors were allocated 54%, European accounts received 40% and offshore US investors the remaining 6%. Asset managers bought 57% of the new issue; banks took 24%, private banks 12%, insurance houses 6% and other investors 1%.

BOI is 64.5%-owned by the Indian government and therefore the notes can be viewed as a quasi-sovereign deal. It is common practice for Indian quasi-sovereigns to include a change of control clause in their transactions and in this case the COC states that if the government's voting power falls below 50% it will trigger an event of default.

However, the likelihood of this happening is low. Yang-Myung Hong, a credit analyst at Nomura, commented that "with the government currently holding a 64.47% stake in BOI, there is very low probability of the government stake declining close to this limit in the near future".

It is expected that more Indian banks will issue dollar bonds in order to capitalise on the market conditions and take advantage of investor demand for more Asian issuance. "The market still seems to be digesting new issues quite well, so issuers probably see this as an opportunity to tap the market," said Hong.

Axis Bank yesterday afternoon announced initial price guidance for a 5.5-year bond, which is being brought to market by Barclays, Citi, Deutsche, HSBC and J.P. Morgan and was expected to price during London trading hours overnight. The Indian pipeline also has Bank of Baroda and ICICI Bank lining up to come to market.

Also waiting in the wings is Korea's Hana Bank, which will start a three-day roadshow on Monday (March 29). Bank of America Merrill Lynch, Citi, J.P. Morgan and RBS are mandated for the deal and will be leading the investor talks.

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