Indian borrowers add spice to dollar bonds

Tata Steel raises jumbo dual-tranche bond, while Greenko and Global Cloud Xchange prices structurally appealing high-yield notes.

Three Indian companies added spice to the dollar bond market on Friday morning, making use of Narendra Modi-fueled enthusiasm post-elections.

Tata Steel priced a $1.5 billion dual-tranche bond, green energy player Greenko raised a debut $550 million five-year note callable in year three and communications services company Global Cloud Xchange sold a maiden $350 million five-year paper callable in year two on Friday morning.

Syndicate bankers said the reason for global investors pouring billions of dollars not only into Indian equities but into debt was fairly simple. The combination of a stable political regime has pushed down credit spreads, which have declined by an average of 50bp since the beginning of the year.  

“There is a renewed sense of optimism around India and international investors are looking more proactively to deploy capital there,” said a Singapore-based syndicate banker. “They see it as more progressive and friendly post to Modi-election victory.”

Tata Steel’s debut offering in the high-yield space can be broken down into a $500 million 5.5-year offering and a $1 billion 10-year note, according to a term sheet. The tranches have a reoffer yield of 4.85% and 5.95% respectively.

The steelmaker obtained a combined order book in excess of $9 billion from more than 700 accounts, more than 90% of which were from institutional investors, enabling the borrower to tighten pricing by approximately 30bp on both tranches, according to sources close to the deal.

Although Tata Steel’s debut in the dollar space is viewed as significant, it is relatively straightforward to execute the deal based on the fact that it’s a subsidiary of the Tata Group, sources close to the deal said.

New breakthrough

GCX and Greenko’s maiden high-yield 144A/Reg s-registered bonds, on the other hand, were more structurally interesting, with the latter borrower making use of the new Modi-led government proposals aimed at boosting capital market activity.

“For borrowers that are willing give proper credit support, come up with a good structure and market to a wide base of 144A investors, they will reap greater benefit,” said a source, adding that GCX’s had several subsidiaries acting as guarantors.

In the case of Greenko, bondholders were able to benefit from a recently allowed back-to-back arrangement where the offshore entity is able to take security of an onshore asset as long as it’s denominated in Indian rupees. Prior to this, such an arrangement was not permitted.

Under the new rules, offshore bondholders are able to essentially step into the shoes of an onshore creditor in a default scenario and have senior claims over the company’s onshore assets, a Singapore-based syndicate banker explained. And for a company such as Greenko that is asset-rich and possess a portfolio of high-quality renewable assets, it’s certainly very appealing to investors.

“The structure that was used in Greenko’s deal has never been used before in an Asian high-yield trade,” said a source familiar with the matter. “We saw that as an opportunity because it’s almost a way to replicate what you would have in a direct asset security structure.”

About $250 million worth of Greenko’s proceeds will be used to refinance a Standard Chartered Bank loan facility, and the remaining used for capital expenditure and general corporate purposes, according to sources close to the deal.

The transaction obtained an order book of $1.3 billion from more than 110 accounts, 90% of which were from fund and asset managers, added the source. The note’s pricing tightened by 25bp from an initial price area of 8.25%.

GCX offering, on the other hand, received an order book of $1.8 billion from 150 accounts, 78% of which were from fund managers and 13% from hedge funds. The bond’s pricing also tightened by 25bp from an initial price guidance area of 7.25%.

High-yield expansion

The three bonds, which originate from India, come at a time when high-yield experts are calling for increased diversity in a space that is highly dominated by Chinese issuers.

According to Dealogic data, Chinese issuers have raised close to $11 billion with 31 deals in the high-yield space year-to-date, accounting for 72.3% of total market share as of July 23. This is followed by Singapore, Indonesia, Macao and India, with market shares of 6.6%, 5.3%, 5% and 3.9% respectively.

Rolta is the most recent Indian high-yield issuer to tap the dollar markets. The company raised a $300 million five-year bond on July 17, pricing below par to give an effective yield of 9%.

ANZ, Bank of America Merrill Lynch, BNP Paribas, Citi, Credit Agricole, Deutsche Bank, HSBC, Morgan Stanley, Rabobank International, The Royal Bank of Scotland, SBI capital Markets and Standard Chartered are joint bookrunners of Tata Steel's bond.  

Deutsche Bank is the sole global coordinator and joint bookrunner of Greenko’s bond. Other bookrunners include Barclays, Investec, JPMorgan and Standard Chartered.

Deutsche Bank and Standard Chartered are the joint bookrunners of GCX’s offering.

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