Indian refiner HPCL-Mittal Energy ventured into the international bond markets for the first time this week, selling an upsized $375 million 10-year bond in a relatively stable market.
The BB rated issuer is a joint venture between Hindustan Petroleum Corporation Ltd. (HPCL) and ArcelorMittal’s controlling shareholder and steel tycoon, Lakshmi Mittal, with 49% held by each. The remaining 2% is held by financial institutions.
Bankers said the size of the maiden US dollar sale was lifted to $375 million from an original target of $300 million, after bumper demand from institutional investors on Monday. As the day progressed, yields on the 10-year and 30-year US Treasury edged higher after the first round of French election.
"The overall bond market in Asia was largely flat on Monday, reversing some of the losses suffered last week," said a syndicate banker running the deal
The final order book reached $1.5 billion from 150 accounts. Asian investors took 71% of the deal, leaving 24% and 5% to European and offshore US accounts, respectively. These investors were impressed by the company's ready made demand from HPCL, banker said.
“Investors like the long-term product off-take agreement with HPCL, ensuring the future production and visible cash flow,” the banker said. “Some of them also anticipate that Opec will extend a pledge to cut oil output through to the end of this year.”
On Monday morning, the leads went out with an initial price talk of “the 5.625% area”, before narrowing the Reg S deal to between 5.25% and 5.375%. Final pricing of the April 2027 note was at par to yield 5.25%, according to a term sheet seen by FinanceAsia.
“The final pricing compensated investors for the lower ratings and riskier profile of refiners,” the syndicate banker added.
To find fair value, bankers used Dehli Airport’s 2026 note as a major valuation benchmark. The bond was quoted at a cash price of 106.25 to yield 5.28%, implying the new bond was priced inside the fair value of its comparable.
According to a sales note from a non-syndicate bank, fair value should have been somewhere between 5.1% and 5.2%, based on a 100bp spread over the curve of investment-grade oil majors such as Oil India and NTPC, whose 10-year bonds were trading around 4%.
In the secondary market, the new bonds were trading up slightly on Tuesday morning, being quoted at a cash price of 100.6/100.7, according to market data.
Asset managers and fund managers took 86% of the deal; banks and private banks 8%; and insurance companies, pension funds and sovereign wealth funds 4%. The remaining 2% was sold to corporate treasuries, as well as other investors.
The global coordinators were ANZ, Citi and JP Morgan, while SBI Capital Singapore and Standard Chartered were joint lead managers.
