ICICI prepares new perp deal

ICICI Bank to be the first Indian bank to tap the international tier-1 bank capital market.
ICICI Bank kicked-off roadshows this week for IndiaÆs second ever offshore bank capital deal.

The Mumbai-based bank has hired JPMorgan, Merrill Lynch and Morgan Stanley to sell the proposed hybrid tier-1 perpetual non-call 10-year offering worth a maximum $345 million. However, the market expects that the leads will go out with a deal worth $250 million with an eye on upsizing the deal based on the success of the bookbuild.

Following closely after the completion of UTI BankÆs $150 million upper tier-2 subordinated debt, led by Barclays, Citigroup and Deutsche Bank, ICICI is looking to be the second Indian domestic bank to tap the offshore hybrid market and the first in the tier-1 space following the relaxation of guidelines by India's central bank.

The deal has a Reg-S 144A structure and will be able to tap into US investor demand.

Roadshows are being conducted via two teams. The first will began in Singapore on Monday (August 14), before heading to Hong Kong on Tuesday and then London on Wednesday. The second team will take investor meetings in the US on Tuesday and Wednesday, including Los Angeles, New York, Boston, New Jersey, and Philadelphia.

Any deal will no doubt look towards UTI as its premier benchmark however ICICI also has its own senior debt to look for guidance. Besides UTI is rated lower than ICICI Bank.

Most analysts expect a notional ICICI tier-2 deal would price at a 30bp premium to that of UTIÆs current tier-2 deal, and estimate that the curve between tier-1 credits and tier-2 credits to be worth about 35bp to 45bp.

Unfortunately for ICICI, UTIÆs deal has struggled to find its feet in secondary trading after having closed the deal 6-times oversubscribed amassing $1 billion in aggregate orders. Late last week UTI was quoted at a re-offer spread of 99.60% to 100.21%, yielding at 7.3% to 7.22% or 236bp to 228bp over treasuries or 177bp to 169bp over swaps. The deal originally priced at priced at 99.839% on a coupon of 7.25%, equivalent to a spread of 231.5bp over the 10-year US treasury, or a yield of 7.273%.

Basing a projected price guidance on that algorithm and the current levels of UTI, bankers estimate that the leads will provide guidance of around the 190bp over swaps range.

Additionally some bankers estimate a new tier-1 deal from ICICI to price about 100bp or so wider than ICICIÆs existing 2010 deal. That deal was trading at a price of 98.33% to 98.67% to yield at 6.19% to 6.11%. That equates to 133bp over 125bp over treasuries or 82bp to 75bp over swaps.

The funds will be used to meet the meet increasing demand for loans, expand itÆs franchise and to comply with the upcoming implementation of the Basel II accords, which India is set to adopt in 2007.

The deal has been rated Baa2 by MoodyÆs.

In its ratings report MoodyÆs states: ôThe rating assigned takes into account the bank's intrinsic financial position as reflected by its financial strength rating, which was upgraded to C- from D+ in July, the highest assigned to any Indian rated bank. It also reflects the bank's significant and rapidly expanding franchise mainly in the retail sector where it has managed to capture a large part of this fairly attractive business that is less risky within the Indian context. ICICI Bank's competent management as well as its improving profitability, adequate capitalisation and good asset quality are also factors incorporated into its ratings. The bank's performance during the first quarter ending June 2006 has been quite satisfactory and in line with our expectations, with core operating profits excluding treasury income having grown by 45%.ö

The rating agency further notes that ôthe Baa2 foreign currency rating for this hybrid debt instrument is constrained by the sovereign debt ceiling and that is the reason it is rated at the same level as other more senior foreign currency debt ratings of the bank. In an unconstrained environment such a hybrid instrument would have been rated at least two notches lower than the bank's senior unsecured debt rating, given its embedded additional uncertainties and risks. According to Moody's methodology on hybrids, and based on this instrument's characteristics, it was classified into basket 'B' implying 75% debt-like features and 25% equity-like features.ö

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