India's ICICI Bank raised $500 million through the sale of a five-year bond on Wednesday after pricing the deal below initial guidance of Treasury plus 180 basis points as investors sought to deploy capital ahead of an anticipated interest rate hike by the US Federal Reserve.
The Reg-S offering, the first new Indian dollar-denominated bank deal after Bank of India's $750 million sale in late April, priced at Treasury plus 160bps, well below its initial marketing range of around Treasury plus 180bps, according to people working on the transaction.
“There was a clear scarcity of Indian paper [in April]," according to a person familiar with the deal. "[Market] sentiment before the summer was lifted by debt relief in Greece and steady performance by regional stock markets.
Getting regulatory approval for a Reg-S deal takes about two working days -- much faster than a 144A transaction, which can take two to three weeks.
“The documentation in Reg-S helped the issuer to lock in the best timing and window in the Asian bond market,” the person added. “That allowed ICICI to achieve its lowest coupon rate in dollar terms.”
ICICI’s latest offering was more than three-times oversubscribed, having an order book of $1.75 billion from 151 accounts. Asian investors represented 43% of the book, while investors in Europe and the Middle East accounted for 42%. Offshore US accounts took up the remaining 12%.
Allocations of the asset showed greater diversity, with assets managers and funds subscribing to 65% of the deal and banks taking up 17%. Sovereign wealth funds and agencies represented 7%, as did insurance and pension funds. Private banks subscribed to 4% of the deal.
The final pricing and size of ICICI's latest bond offering was much better than expected largely due to the company's solid corporate and credit profile and limited supply in the market.
"Following an overwhelmingly positive feedback from bond investors, ICICI decided to uplift size of the sale from $300 million to $500 million," the second source said.
As a result of strong demand for fixed-income assets, ICICI's offering had a G-spread + 0, underscoring investors' demand for absolute yield before the expected US interest rate hikes.
Federal Reserve Bank of Atlanta President Dennis Lockhart on Wednesday said the US economy is ready for the first increase in short-term interest rates in more than nine years.
The closest comparable for the note were ICICI's 5.5 year bond deal last September, when it raised $500 million with a T+180 and a G-spread +160.
ICICI Bank was the only issuer to pay zero or no concession to G-spread in the last two months, as investors sought to diversify their portfolios from Chinese and South Korean issuers,” said a third source familiar with the deal. “The result of ICICI’s latest sale was better than expected in terms of achieving the lowest coupon for a public US dollar deal for ICICI Bank as two potential borrowers decided to stay on the sidelines.”
“With a rare Indian US dollar-denominated bank issue, ICICI’s latest offering is set to price a new benchmark-sized 5yr Reg-S bond,” said Mark Reade, Asian fixed-income trader at Mizuho Securities. "ICICI’s credit metrics are superior to those of most of its Indian bank peers."
In secondary markets, ICICI's new offering is trading 2bp tighter at Treasuries plus 158bp, according to Bloomberg bond data.
As of July 17, Asia (ex Japan) G3 DCM has raised $129.2 billion this year, up from $124.8 billion from the same period last year and the highest YTD level on record, according to Dealogic.
Bank of America Merrill Lynch, Barclays, HSBC, JP Morgan, and Standard Chartered Bank are the joint lead managers on the ICICI offering.
This article has been updated to include an explanatory comment on the character of the deal's G-spread and the better-than-expected outcome of the transaction.