Canara Bank, an Indian state-owned financial institution, issued a $500 million five-year bond through its London branch on Thursday, raising hopes that more Indian banks will raise debt in global capital markets especially as the US government moves to resolve its debt ceiling woes.
The Reg S registered bond – which is the first from an Indian financial group since April, and Canara Bank’s first since March 2011 – priced 15bp tighter than its initial price offering of 400bp over Treasuries. The note’s closest comparables were Mumbai-based IDBI’s 2018s, which had a G-spread of 365bp prior to announcement.
“Canara Bank’s issuance is positive for the sector and is certainly a good foundation for other Indian issuers to issue in the future,” said a source close to the deal. “With a deal like this, it’s always a little bit of a test to see whether demand is out there.”
The bond’s performance in secondary markets shows that there is good interest for quality Indian credit from the financial space. It is currently trading 10bp inside the reoffer of 99.77, which is around Treasuries plus 375bp.
Canara Bank began meeting investors in May and was hoping to follow-up shortly with a dollar bond issuance. However, the Indian bank had to put its plans on hold given mounting domestic issues circling the nation’s capital account deficit as well as a dramatic fall in the local currency.
These issues combined with other external factors did not bode well for the issuer, which was unable to gain access to global capital markets that were shut for the entire summer period.
Before the summer lull, Union Bank of India was the last financial institution to issue a dollar bond, selling a $350 million 5.5-year note with a coupon of 3.625% in April, according to Dealogic data.
Asia’s credit markets have been volatile since Federal Reserve (Fed) chairman Ben Bernanke hinted in May that the central bank would reduce its vast purchases of US Treasuries, spelling an end to low interest rates. However, the Fed reaffirmed on September 18 that it will not do so for the time being, boosting market confidence again.
Canara Bank’s note was more than four times oversubscribed from approximately 185 accounts. Asia subscribed to a bulk of the bond, accounting for 77%, while the remainder went to European investors. Asset and fund managers account for 46% of the investment, financial institutions 24%, private banks 15%, insurance 2% and others 3%.
Bank of America Merrill Lynch, Barclays, BNP Paribas, Citi, Crédit Agricole, HSBC and JPMorgan are the joint bookrunners of Canara Bank’s deal.
