India's Axis makes splash on bond market return

The Indian bank takes advantage of spread tightening across the country's credit curve.

India's Axis Bank returned to international bond markets for the first time since 2012 on Monday with a five-and-a-half-year $500 million transaction. The group, which is rated Baa2/BBB-/BBB- by the three main debt rating agencies, took advantage of a slight tightening in Indian bank credit spreads over the course of last week.

Axis Bank priced its 144a bond on a re-offer price of 99.656% to yield 3.319%, equating to a spread of 170 basis points over US Treasuries. That compares with initial guidance of Treasuries plus 195bp, which was subsequently tightened to a range of 170bp to 180bp over Treasuries, according to a term sheet seen by FinanceAsia.

The final order book is said to have closed around the $2.1 billion mark with participation from about 155 accounts. 

"There hasn't been that much Indian bank supply recently and Axis Bank has not been in the market for a while either," one banker told FinanceAsia said. "It's in the upper tier of Indian bank names, so investors were glad to see it back." 

Asian investors took 43% of the deal, European investors 48% and US investors 9%. By investor type, fund managers accounted for 42%, banks 43%, insurance and pension funds 10% and private banks 5%. 

Axis Bank has three outstanding bond issues in the market maturing in 2015, 2016 and 2017. These were trading Monday on spreads of 110bp, 150bp and 210bp over Treasuries, respectively.

No issue premium

However, bankers familiar with the matter said investors did not use them as a benchmark since they are now very thinly traded. So instead they compared the deal against the outstanding bonds of rival Indian banks ICICI and State Bank of India.

ICICI has the same debt rating as Axis Bank and its 3.5% 2020 bond was bid at 162bp/156bp over Treasuries ahead of pricing. SBI, meanwhile, is rated one notch lower by Moody's. It's 2019 bond traded around 143bp/137bp over Treasuries or at about 163bp over on a G-spread basis. 

Based on these comparisons, bankers said Axis Bank's new bonds were sold at fair value and had not needed a new issue premium. 

In a credit report issued earlier this week, JP Morgan noted the recent outperformance of Indian names. "We suspect that Indian credit is benefiting from weakness in other regions and that investors increasingly view the country favourably relative to other BBB-rated countries," it said.

Axis Bank also recently reported strong first-half results, with net earnings up 18% year-on-year and loan growth up 20%.

Provisions were marginally higher, up 5%. But as analysts pointed out this is because the bank has used its profit growth to write off more non-performing loans. The bank's impaired loan ratio stood at 0.44% on a net basis as of September 30. 

While marketing the new bonds, Axis Bank's management highlighted that the bank's net interest margin (NIM) and return on assets (ROA) have both been rising since 2011, despite its increasing retail focus. Since 2011, the bank's NIM has risen from 3.59% to 3.81%.

Recent increases have been driven by better balance sheet utilization, with the ratios of CD's rising from 79% to 85% over the past quarter.

Between 2011 and 2014, ROA has increased from 1.68% to 1.78%. Total assets now stand at $64 billion.

As of September 30, Axis Bank's capital adequacy ratio stood at 16.07%, of which Tier 1 capital accounted for 12.62%. 

The lead managers for its bond deal were Barclays (books), Credit Agricole, CIB, HSBC, JP Morgan and Standard Chartered. 

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