Although Asian dollar bond issuance has hit record levels, Indian borrowers have not joined that stampede — at least not during the first half of this year. However, issuance has picked up during the past two weeks, with Export-Import Bank of India printing a $500 million five-year bond last night.
India’s Eximbank is 100% owned by the Indian government and is seen as a proxy for the sovereign. The deal attracted an order book of $2.5 billion despite negative headlines surrounding the possibility of India being downgraded to sub-investment grade as it battles with slowing growth and a depreciating currency. (The sovereign is currently rated Baa3/BBB-/BBB-, which is the lowest investment-grade rating.)
The bank’s implied government guarantee helped it to price tighter than State Bank of India, despite its weaker credit metrics and smaller size. SBI, though bigger, is a commercial bank and is not wholly owned by the government.
India’s Eximbank is rated Baa3/BBB- and there is an event-of-default clause that is triggered if the Indian government’s stake in the bank falls below 51%.
The leads — Citi and Standard Chartered — went out with an initial guidance of Treasuries plus 375bp and a final guidance of Treasuries plus 355bp, with the bonds pricing at the final guidance and about 10bp inside of State Bank of India’s bonds, which were trading at Treasuries plus 363bp to 365bp on Tuesday. The coupon was 4% and the bonds reoffered at 99.365 to yield 4.142%.
The bonds qualify for inclusion into the Emerging Markets Bond Index after a “seasoning period”. That worked in the bank’s favour as it improves the liquidity of the bonds, which investors like. Bonds need to be 100%-owned by a sovereign to be included in the index.
About 52% of the deal was allocated to Asian investors, 36% to Europe and 12% to offshore US investors. Asset managers took 48%, banks 19%, private banks 21%, insurers 11% and others 1%.
In contrast to most Indian issuers, which routinely mandate a horde of banks, India’s Eximbank has largely stuck with a two-bank strategy since it issued its inaugural bond in 2004.
More issuance is expected from India in the coming weeks, after SBI priced its $1.25 billion bond last week, re-opening the market. “I won’t be surprised if we see other Indian banks, perhaps the likes of ICICI Bank and Bank of Baroda issuing opportunistically,” said one banker.
While Hong Kong companies and Korean borrowers have been actively tapping the dollar market, Indian issuance has been muted. Including India’s Eximbank, only five Indian borrowers have issued US dollar bonds, raising $3.7 billion or a mere 4.5% of the total $81.2 billion raised year-to-date by Asian issuers outside of Japan, according to Dealogic. This is a pale shadow compared to the volumes chalked up by Hong Kong companies alone.
Away from India’s Eximbank, Korea Finance Corp was marketing its five-year dollar benchmark at the area of Treasuries plus 190bp. This was revised to Treasuries plus 175bp to 180bp last night. Bank of America Merrill Lynch, Deutsche Bank, HSBC, KDB and Morgan Stanley were joint bookrunners.