icici-uk-prices-benchmark-bond-in-a-weak-market

ICICI UK prices benchmark bond in a weak market

ICICI UK completes its $500 million bond, but a book of just $675 million suggests demand for Indian paper will not last.
ICICI UK, a subsidiary of IndiaÆs ICICI Bank, last night priced its $500 million Reg-S bond at guidance amid a weakened Asian debt market. The issuer attracted $675 million worth of demand at 50bp over three-month Libor.

A total of 52 investors participated in the transaction, which was managed by Citi, Lehman Brothers and Merrill Lynch.

In terms of comparables, bankers quoted ICICI IndiaÆs 2010 FRN that was trading last night at 48bp over Libor, as well as UTIÆs 2010 FRN that was quoted at 52bp over Libor. Additionally, ICICI IndiaÆs fixed 2012 issue and ICICI UKÆs 2012 FRN were trading yesterday at 63bp and 65bp over Libor respectively.

The geographic split saw 68% of the bonds sold to Asian investors and 32% to European accounts. Banks bought 58% of the bonds, funds and asset managers 37%, and others 5%.

ôICICI UK issued a benchmark at aggressive but reasonable levels in the face of widening market conditions. This is a good outcome,ö says a source close to the deal. ôIn addition, if you consider a new ICICI UK transaction would price at 50bp, this means that for the first time an ICICI UK deal priced flat to the parent û in difficult market conditions.ö

The transaction marked a positive development for ICICI UK, attracting 15 new investors to the credit. Moreover, the majority of the bonds sold primarily to Asia, in contrast to ICICI UKÆs previous transaction where the bonds sold mainly to Europe (62%).

The deal took place after the issuance of a ú50 million deal overnight through ICICIÆs Bahrain branch. Although the timing of the sterling transaction was considered ôsub-optimalö, the deal apparently did not impact ICICI UKÆs trade, since the sterling investor base is completely different.

But some investors were taken by surprise by the sterling offering, calling it a ôsneakyö move. Indian bank paper has been widening in a market that has done nothing but tighten since February, and investors apportion much of the blame to ICICI. ôSloppiness in Indian paper is purely down to a prolific issuer such as ICICI tapping the market any way it can: through India, through the UK, through Bahrain and in various currencies,ö says one buy-side source. ôAlso, investors are aware that ICICI is getting ready to issue new shares in the second half of June. Its capital structure will then allow the issuance of more tier-1 debt, causing yet more sloppiness in that sector.ö

It is unclear whether, in terms of cost savings, ICICI should tap the market with a small number of large transactions or a large number of small transactions. The appetite is still present for Indian paper, as demonstrated by last night's transaction, but many investors will steer clear of all ICICI trades unless the bank begins pricing deals at what they believe to be a decent discount (at least five basis points) to secondary trading levels.

Others may have participated with a short-term view, conscious that upcoming supply from India will likely drive bond prices down. However, sources close to the deal refute this, saying that the bonds were placed in safe hands.
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