ICICI sets Indian bond benchmark

Tight pricing from a predictably strong order book.

Joint leads Deutsche Bank and Merrill Lynch priced a $300 million five-year fixed rate deal for ICICI Bank at New York's open yesterday (Wednesday). As the first offshore Indian bond in just over six years, the deal met an enthusiastic response from investors, with books topping $1.5 billion and closing five times subscribed.

The huge rarity value of the Baa3/BB rated deal enabled the leads to progressively tighten pricing to levels where it became competitive with the loan market. Having set out with price guidance around the 155bp area on Monday, the leads narrowed the level to 148bp on Wednesday and then priced through it.

Final terms saw pricing at 99.943% on a coupon of 4.75% to yield 4.763%. This equated to a spread of 146bp over five-year Treasuries, or 106bp over Libor. Fees totaled 20bp.

Just over 150 accounts participated in the deal with no one investor allocated more than $12 million. The largest order was for $50 million.

By geography, the deal had a split, which saw 44% placed into Asia, 41% into Europe and 15% with offshore US. By investor type, 45% went to funds, 35% to banks, 10% to private banking channels and 10% to insurance companies.

Observers note a lack of offshore Indian money. None of the commercial banking or fund demand is said to have originated from subcontinent.

Many initially thought India itself would prove to be the main driver of the deal. Instead, it was emerging market funds starved off paper for so many years that were attracted in their droves. And crucially, because ICICI is rated higher than the Indian sovereign, it has one investment grade rating from Moody's, which bought in a number of funds that would have otherwise been unable to participate.

In terms of pricing, the only real comparables are the CDS market and ICICI's existing $150 million 7.55% August 2007 issue, which was trading at about 100bp over Libor at the time of pricing. Given there is 40bp on the swap curve between four and five years, this means the new deal has priced some way through the old.

Five-year credit default swaps were being quoted around 110bp to 115bp.

Against recent syndicated loans from India, the deal also looks tightly priced. ICICI has only raised money twice in the last three years. In May 2001, it completed a five-year term loan at 82bp over Libor. Then in March this year it raised $100 million from a one-year deal at 40bp over Libor.

Earlier this year, its wholly-owned entity ICICI Home Finance also raised $30 million from a term loan, which had a headline margin of 90bp over Libor and all-in of 125bp for the lead arrangers.

Most conclude that the deal is too unique a proposition to make any relative value comparisons worthwhile. Certainly against other Asian banking names, pricing is very aggressive.

In terms of rating, the nearest comparable is probably Baa2/BBB- rated Woori Bank, which has a one and two notch higher rating. Its recent September 2008 transaction is trading about 7bp wider at 113bp over Libor.