Indian Overseas Bank latest to join bond crowd

Indian Overseas Bank tightens guidance on the back of a $5 billion book and offers investors a premium over State Bank of India.

August is typically a quiet month for bankers in Asia, but the deal flow continues this year, with public sector lender Indian Overseas Bank (IOB) hitting the ground running on Monday night with a benchmark dollar bond.

The bank, acting through its Hong Kong branch, started off marketing its five-and-a-half year dollar bond to investors at the area of Treasuries plus 430bp, which was tightened to a final guidance of plus 405bp to 410bp, on the back of a strong book of around $5 billion. The deal printed at the tight end — Treasuries plus 405bp — and raised $500 million, the maximum amount the Indian lender was planning to raise.

“As far as Indian Overseas Bank is concerned, I think they picked the right window — there is no competing supply in the market,” said one source. “They are a weaker bank than State Bank of India and so they have to pay a premium over SBI.”

Based on the initial guidance, the new IOB bonds maturing February 2018 offered a 95bp pick up over State Bank of India’s August 2017s, which were at Treasuries plus 325bp, after adjusting for the curve. They offered a 105bp pick up over Eximbank of India’s August 2017s, which were at Treasuries plus 315bp.

IOB’s bonds, which are rated Baa3 by Moody’s and BBB- by Standard & Poor's, offered tighter protection in the event the Indian government’s stake in the bank falls. There is an event of default if the Indian government ceases to own more than 50% of the bank. (Its stake currently stands at 69.6%). In contrast, for State Bank of India’s recent bond, there was a change-of-control put at 101 if the government’s ownership falls below 51%.

As of last night, the fees for the deal were still being decided, but according to a source, it is expected to pay in excess of 10bp. However, this will be split among the seven bookrunners — Barclays, Citi, Deutsche Bank, HSBC, J.P. Morgan, Royal Bank of Scotland and Standard Chartered. The ballpark fees for Indian banks is said to be 20bp to 25bp, though others have put it in the single digits.

IOB is a mid-sized public sector bank that has traditionally focused on lending to medium-size companies, and most recently tapped the market in April last year, when it raised $500 million through a five-and-a-half-year bond that priced at Treasuries plus 290bp.

Further supply is expected from the Indian banking sector, even as India faces a potential downgrade into sub-investment grade status.

“A lot of Indian issuers are looking to take advantage of any small window to tap the bond market, so we are expecting a fair bit of supply,” said Clifford Lau, head of Asia fixed income at Threadneedle. “Compared to other Asian banks, the Indian banks look attractive from a carry return point of view. However, from a fundamental and credit perspective, it’s not exactly a slam dunk as their credit matrix is weaker than their Asian peers, so I think the valuations are fair rather than cheap.”

IDBI Bank will be holding roadshows in Singapore on Tuesday and Wednesday, and is expected to tap the Singapore dollar market. DBS, HSBC and Standard Chartered are the arrangers. Elsewhere, ICICI Bank is also rumoured to be tapping the dollar market soon.

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