Canara Bank, acting through its London branch, last night tapped the bond market with a $350 million 5.5-year senior bond.
The Indian public-sector lender completed roadshows in February, but held off printing a deal because of the tensions in the Middle East and the volatile market conditions. However, the leads saw a window of opportunity to tap the market yesterday and decided to pull the trigger.
Canara issued a subordinated bond back in 2006, but last night’s Reg-S deal was its debut senior bond. The bank appointed five banks as bookrunners: Bank of America Merrill Lynch, Citi, Deutsche Bank, HSBC and Royal Bank of Scotland. They set initial guidance in the area of Treasuries plus 300bp, but, in the end, priced the bonds at US Treasuries plus 295bp, at the tight end of the Treasuries plus 295bp to 300bp final guidance. The coupon was fixed at 5.125% and the notes were reoffered at 99.560 to yield 5.218%.
The leads had indicated to investors that the deal would be a benchmark size, which in the context of the US dollar bond market, usually means at least $500 million. However, the deal eventually fell short of that at $350 million.
Nonetheless, Canara gathered a total order book of $1.6 billion from 155 accounts, indicating that it could have raised a larger amount if it wanted to, though perhaps there may have been concerns about aftermarket performance if it had pushed on the size of the deal. With investors expecting more issuance from Indian banks, Canara did what was needed to sell the bonds.
“Canara Bank was prepared to pay up given they were a debut borrower for a senior bond and there is a heavy pipeline of issuance,” said one banker on the deal.
The new Canara bonds, which mature on September 9, 2106, priced about 15bp behind the similarly rated Bank of Baroda bonds maturing August 24, 2016, with an extension of slightly more than two weeks.
Baroda tapped the US dollar bond market with a 5.5-year $500 million bond issue last month, priced at a spread of 285bp over Treasuries. Yesterday, those bonds were trading at 279bp over Treasuries.
In terms of allocation, investors in Asia took 65%, Europe 28%, and US offshore 7%. Fund managers/asset managers bought 42%, banks 33%, private banks 23% and others 2%. Canara’s issue is rated Baa2 by Moody’s and BBB- by Fitch.
The Indian government owns 73.2% of Canara and an event of default is triggered if it ceases to own more than 50% of the voting securities.
Looking ahead, there is expected to be a flurry of debut senior bond issuance from India’s public-sector banks and this impending supply might weigh on bond prices.
“We understand that a number of public-sector banks, including Punjab National Bank, Indian Overseas Bank (IOB) and Syndicate Bank are considering issuing Reg-S only US dollar senior bonds for the first time,” wrote Nomura analyst William Mak in a report. “We believe that smaller public-sector bank debut issuers (IOB and Syndicate) will need to pay even more than Canara to issue US dollar senior bonds,” he added.