IDBI prices dollar bond as NTPC launches roadshows

Indian policy bank prices international bond inside loan market levels.

The majority government-owned Industrial Development Bank of India (IDBI) raised $300 million yesterday (Wednesday) through a five-year bond. The deal did not close as heavily oversubscribed as a forerunner from ICICI, but this was, perhaps, hardly surprising given the latter's recent secondary market performance and emerging markets volatility.

With Citigroup and JPMorgan as lead managers, IDBI priced its deal at the mid point of its indicative range. Backed by a Baa3/BB/BB+ (Fitch) rating, the deal was priced at 99.653% on a coupon of 4.75% to yield 4.82%. This equated to a Treasury spread of 185bp and Libor spread of 145bp. Fees were 22.5bp.

At this level, the bond was priced 5bp inside a $75 million five-year syndicated loan IDBI currently has in the market via Barclays Capital. It also came about 13bp wide of ICICI's 4.75% October 2008 issue, which was trading at about 132bp over Libor at the time of launch.

Given the curve is worth 2bp to 3bp, the deal came about 10bp wider on a like-for-like basis - a level most market participants deemed fair. Although the two banks now have comparable credit ratings from all of the agencies, ICICI has historically been rated one notch higher by Moody's.

Until January this year, ICICI's Baa3 rating was one of only two bank ratings in Asia that pierced their respective sovereign ceilings. HSBC was the other. However, the differential was normalised when the agency upgraded the Indian sovereign and related entities from Ba1 to Baa3.

ICICI has also not performed particularly well since its launch in mid-October. Aside from the whole Philippines curve, it is one of the few bonds to have widened during the interim period.

The deal was launched at a Libor spread of 106bp, some 26bp tighter than where it is today. Like IDBI, the transaction also carries a 4.75% coupon and had a launch spread of 146bp over Treasuries.

Whereas ICICI's deal closed five times subscribed, investors have proved to be far more cautious with IDBI, which secured an order book of $400 million. A total of 87 accounts participated, with a geographical breakdown that saw 51% placed into Europe, 42% into Asia and 7% into the US.

By investor type, banks took 49%, asset managers 29% and private banks 22%.

IDBI is 58% directly owned by the Indian government and 16% by government-owned entities. It is currently in the process of preparing to merge with IDBI bank and transform itself into a commercial bank in much the same way that ICICI has already successfully done.

Following IDBI, the government-owned National Thermal Power Corporation (NTPC) sets off on roadshows today for a $200 million seven-year deal via ABN AMRO and Merrill Lynch. After presentations wrap up in Singapore, the team will move to Hong Kong on Friday, then London on Monday ahead of pricing on either Tuesday or Wednesday.

The transaction will mark the group's international capital markets debut, but is unlikely to be its last given heavy capex requirements over the coming decade. The passage this year of the country's Electricity Bill unleashes an ambitious government plan to provide electricity to all Indian villages by 2007 and all homes by 2012.

NTPC aims to add 20,000MW of capacity by 2012 and spend up to $2.2 billion per annum to do so. The majority of funding will be sourced from the debt markets, but since the group's gearing currently stands at only 42% it has plenty of room for additional leverage.

In terms of pricing, specialists say NTPC trades through IDBI in the domestic debt markets and either through or on top of ICICI.

The one thing, which may hold it back from achieving a similar feat in the international debt markets, is its Ba2 rating from Moody's, which has remained static since 2000. The group is rated at the sovereign BB/BB+ level by Standard & Poor's and Fitch.

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