Bharat sparks Indian bond supply, Adani up next

India's dollar bond market comes to life, with Bharat Petroleum becoming the first Indian issuer this year. Adani Ports has quickly followed.

After an absence of almost two years, Bharat Petroleum returned to the dollar bond market on Tuesday, becoming the first Indian issuer to sell a dollar bond this year.

It closed a $600 million 10-year bond at a spread of 200bp over Treasuries, which was at the tight-end of final price guidance. That was in line with fair value for the deal, according to calculations by both bankers and analysts.

Bankers working on the transaction had some clear positives in their favour: Bharat Petroleum is majority state-owned; it is well-known to investors, having previously sold two dollar bonds; and it was also happy to keep the deal close to the minimum benchmark size of $500 million. Bankers working on the transaction said there was little pressure from the borrower to make the deal bigger.

That meant the leads were able to allocate the bond sensibly, favouring real-money accounts that are likely to be long-term holders of the bond. The allocation appeared to help the secondary performance. Bharat Petroleum’s bond was trading about 5bp tighter by 10.30am, according to two syndicate bankers.

The success of the deal was good news for a growing pipeline of Indian issuers planning to come to market, a syndicate banker said. Among them is power company NTPC, which is planning a euro deal. But another Indian issue has already turned to the market.

Adani Ports & Special Economic Zone, a privately-owned company that roadshowed its own bond last November, opened the books for a benchmark five-year bond in morning trading on Wednesday. Adani, which is issuing in Reg-S/144A format, approached investors with initial price guidance of 235bp over Treasuries. The company, which was expected to issue the bond overnight, made its bond debut in July 2015.

Fair value

The bookrunners for Bharat Petroleum’s bond did not have to look far to find a good comparable. Bharat Petroleum has turned to dollar bond investors twice before, most recently selling a $500m 4% May 2025 deal almost two years ago.

When the leads approached investors with initial price guidance of around 220bp over Treasuries in early morning trading on Tuesday, they were offering a premium of roughly 35 basis points to the 2025 bond on a G-spread basis.

Against Bharat Petroleum’s $500m million 4.625% October 2022 bond the premium was even chunkier, quoted by one analyst as 55 basis points.

But after that ostensibly generous initial guidance — which pushed the peak order book to around $2 billion — the bookrunners revised guidance to between 200 basis points and 205bp over Treasuries. They then priced the bond at the bottom of the range.

The bond did not price at tightly as some analysts had expected. Fair value for the spread was around 200bp, exactly in line with final pricing, according to a Hong Kong-based analyst. But before the deal priced, he had told investors he expected pricing to come inside that, predicting a final spread of around 185bp.

That initial optimism was based on the expectation of heavy demand from life insurance companies, as well as the relative scarcity of bonds from Asian issuers outside China. But Bharat Petroleum is unlikely to balk at having got away without paying a new issue premium.

Insurance companies did end up representing a large portion of the $1.7 billion book, a banker familiar with the deal said. In the final order book statistics, they were grouped with pension funds and sovereign wealth funds to get a 21% allocation.

The rest of the order book was perhaps unsurprising. After attempting to allocate as much of the bond as possible to high-quality, real money accounts, the leads sold 68% to fund managers. Banks took 7%, and private banks and other investors were allocated just 4%.

Asian accounts were allocated 75%, those in Europe, the Middle East and Africa took 22% and offshore US investors got the remaining 3%. But at least one large US order was booked under Europe, a syndicate banker said, meaning the true offshore US allocation was higher.

Citi and Standard Chartered were the global coordinators of the bond, and bookrunners alongside DBS, Mitsubishi UFJ Group and SBI Capital Markets.

BPRL International Singapore was the issuing entity for the deal.

Bank of America Merrill Lynch, Barclays, Citi and StanChart are the global coordinators of Adani Ports’ bond. Credit Suisse, Emirates NBD Capital and SBI Capital are bookrunners alongside them.

¬ Haymarket Media Limited. All rights reserved.
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