IDBI's Indian dim sum

IDBI Bank wraps up first Indian dim sum

The deal allows India's IDBI to diversify funding sources and access cheaper capital.

IDBI Bank, acting through its Dubai International Financial Centre branch, priced the first offshore renminbi bond for an Indian issuer late Friday afternoon. The Rmb650 million ($102 million) three-year offshore renminbi bond priced at par to yield 4.5%, in line with the final guidance and slightly tighter than the initial guidance in the area of 4.625%.

The deal enables IDBI to diversify its funding sources and also raise funds at a slightly cheaper cost than it could in the dollar bond market, where there is an over-supply of Indian banks waiting to launch deals.

IDBI’s offshore renminbi bond also offered investors a taste of two nascent emerging market economies: India and China. The deal attracted an order book of Rmb900 million from more than 20 accounts. A number of large accounts were said to have anchored the deal and fund managers and private banks came in after the announcement.

The exact breakdown for investor type and geographical split was not available, leading to speculation that HSBC may have taken some of the deal on its books to sell down to investors later. However, a person familiar with the deal said it was well-subscribed, which allowed it to be upsized from Rmb500 million to Rmb650 million.

HSBC was a sole bookrunner on the deal. The coupon was fixed at 4.5% and the bonds performed during secondary trading, and were quoted at 100/100.2 on Monday afternoon.

According to market sources, IDBI does not need renminbi and is expected to swap the proceeds raised into US dollars. In his sales and trading note, Nomura analyst William Mak said that the cost of swapping a three-year bond from offshore renminbi to US dollars is about 1%, which translates into an all-in cost of Libor plus 350bp versus approximately Libor plus 407bp if it were to tap the dollar bond market.

“Raising funds in the offshore renminbi market allows IDBI to diversify its funding source and it is also slightly cheaper than the dollar bond market,” said Nomura’s Mak.

Mak also suggested in his note that retail investors may shy away from the deal. In India, the all-in yield may not seem very attractive compared to other local currency instruments, whereas in Hong Kong or China there may be worries about the challenging macro backdrop in India or the bank’s relatively high exposure to the power industry (which makes up 11.9% of total loans).

The issue is expected to be rated Baa3/BBB- by Moody’s/Standard & Poor’s. There is a put at par if the Indian government’s shareholding falls below 50% and there is a rating downgrade at the same time. IDBI is a public sector bank and the government’s stake currently stands at 65.1%. The senior unsecured bonds mature on November 18, 2014.

A number of Indian borrowers are looking at the dim sum market to raise funds. This includes Infrastructure & Leasing Financial Services (IL&FS) which completed roadshows a few months ago. Like IDBI, IL&FS is also expected to swap the proceeds to dollars. Deutsche Bank, Royal Bank of Scotland and UBS are joint bookrunners.

¬ Haymarket Media Limited. All rights reserved.

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