India's Tulip IT issues $125 million convertible

The offering comes after a four-fold increase in the company's share price in 12 months and marks the third Asian CB led by Barclays in a week.
India's Tulip IT Services last night raised $125 million from the sale of five-year convertible bonds that met with good demand from investors.

At a market capitalisation of $600 million, the company is still small compared with better known Indian competitors like Infosys, but it is growing rapidly and its client list includes blue-chip companies like Standard Chartered Bank that are themselves growing. Tulip provides data telecom services and IT solutions, including entire networks, as well as infrastructure management services.

Investors also liked the fact that the conversion premium was kept at 35%, compared to premiums above 50% on several other recent offerings. The premium was offered in a range of 30% to 35% over TuesdayÆs closing price of Rs848.

The yield was fixed in the middle of the 7% to 7.75% range at 7.375%. The bonds will pay no coupon and in accordance with Indian regulations there is no put option. The issuer will be able to buy back the bonds or force conversion after three years, however, subject to a 130% hurdle. The valuations also looked on the generous side with a bond floor of 92.25% and an implied volatility of 31% - compared with a historic volatility of 64%.

However, this may have been deemed necessary as the CB will account for a quarter of Tulip IT's existing market cap if the $25 million greenshoe is also exercised. As of last night, that hadnÆt yet happened. The stock has also been an outperformer in the Indian market with a four-fold increase over the past 12 months. However, it fell 4.7% yesterday ahead of the CB transaction.

Barclays Capital, which acted as sole bookrunner, was said to have provided a credit bid in the form of callable credit default swaps for one third of the deal (pre-shoe) at 300bp over Libor. Other underlying assumptions included a stock borrow cost of 5% and protection for dividend yields above 1%, which is higher than what the company is distributing at the moment.

According to a source, the deal was about three times covered with close to 30 names in the book.

The money raised will go towards expansion and to enable Tulip to take on more outsourcing projects.

This was Barclays' third Asian CB in a week, following another small ($75 million) Indian deal for Educomp Solutions and a significantly more interesting euro-denominated five-year convertible for KoreaÆs Ssangyong Motors. Partly helped by the scarcity of Korean paper, the latter was over 12 times covered, attracted more than 100 investors and ended up being upsized to Ç160 million ($215 million) from Ç125 million. The deal, which has a 2.5 year put option and was priced with a 30% conversion premium and a yield-to-put of 4.4%, also had a Ç40 million greenshoe.

According to people familiar with the bank, Barclays is in the process of broadening its Asian CB franchise to also include Korea after two years with an almost exclusive focus on the Indian market. And with Ssangyong Motors being the second largest Korean CB so far this year after a $500 million offering by LG Philips LCD, it appears to be off to a good start.
¬ Haymarket Media Limited. All rights reserved.
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