The Japanese market marches to a different beat from the rest of Asia, and yesterday's bond deal from Indian Railways Finance Corporation proved it. The Y13 billion ($120 million) deal was priced yesterday amid the global volatility in GM-modified spreads. While this volatility has caused many other Asian bond deals to be scrapped, Indian Railways' issue carried straight on through without even having to increase its spread from when it started pre-marketing at the beginning of the month.
The five-year deal was marketed at 70bps over yen libor and ended up being priced at par with a coupon of 1.43% to yield 70bps over yen swaps and 77.5bps over benchmark JGBs. Indian Railways Finance Corporation is the financing arm of the Indian Ministry of Railways.
In comparison with comparable credits at Indian Railway's Baa3/BB+ level, the deal looks tight. ICICI (Baa3/BB+) is at 82bps over dollar libor with an August 2009 deal. EXIM (also Baa3/BB+) has a July 2009 bond outstanding, which is quoted at 75bps over dollar libor.
The lead managers, ABN Amro, Daiwa Securities SMBC and UBS, are pleased with the reception they got in the yen market, in particular since there have been no Indian issuers there in 14 years.
"Given the high quality of the credit," said a banker at UBS, "we managed to build an impressive order book with primarily buy-and-hold accounts despite prevalent uncertainty in the markets. IRFC has been successful in setting a very important benchmark for Indian issuers."
The marketing saw the deal nearly two times subscribed with orders worth Y25 billion from 28 accounts. 20 accounts made up the final book. 59% of these were banks, 29% fund managers and 12% insurers. 15% went to Japanese investors, 54% to other Asian accounts and 31% to European accounts.
"IRFC has been successful in pricing the tightest Indian offshore bond since the Asian financial crisis," said a banker at ABN AMRO. "This underlines the fact that there is strong demand for Indian credit, especially a quality sovereign-linked credit like IRFC. The decision to issue a [yen] bond sheltered IRFC from the turbulence in the US dollar market."
For Indian Railways, the deal has given them access to a new and very cheap source of funds. It is a market that other Asian issuers might look to tap now that spreads in the dollar markets are widening so dramatically.