Indian infrastructure companies continue to take advantage of attractive primary market yields and buoyant investor demand by locking in low fixed-rate funding. Yesterday, Indian Railway Finance Corporation (IRFC) launched a small five-year issue, a few days after NTPC raised $500 million to help fund capital spending in the power sector.
The new IRFC notes were reoffered at par and pay a 3.417% with a maturity date of October 10, 2017. The yield was at a spread of 280bp over the US Treasury five-year benchmark.
The lead managers had approached investors early yesterday morning with spread guidance of 310bp, 30bp wider than the issue eventually priced late last night. The obvious comparable credit was Export-Import Bank of India’s (Exim) existing five-year issue, which had opened at 285bp but then tightened 10-to-15bp during the trading day.
Depending on where you thought the Exim’s bonds were trading, the IRFC deal offered a small or negative new-issue premium. Like IRFC, Exim is 100%-owned by the Indian government.
The issue was sold to Asian and European accounts under Regulation S, which precluded onshore US investors. They had been told at the outset that the size of the deal would be restricted to $300 million. The scarcity of paper would have attracted orders from some investors, while the future illiquidity of such a small issue would have repelled others.
The deal attracted 245 orders worth more than $3.6 billion, according to the lead managers. Asian accounts took 70% of the notes and 30% went to Europe. By investor type, fund managers bought 57%, commercial banks 20%, private banks 13%, insurance companies 4% and others 6%.
The senior, unsecured notes rank on par with IRFC’s other senior debt, and are rated BBB- by Standard & Poor’s and Fitch, and the equivalent Baa3 by Moody’s. The company is wholly owned by the state, and the ratings are the same as the sovereign’s.
Investors in the issue have the reassurance of a letter of undertaking from the Ministry of Railways to maintain state ownership of IRFC.
IRFC was set up in 1983 as a non-bank finance company under the Reserve Bank of India Act (1934) in order to raise funds from debt markets to finance the acquisition of new rolling stock for the Indian railway system. It has a niche franchise and a strategic role as the sole arranger of lease finances for the Ministry of Railways.
Moody’s credit rating also “reflects the company’s strong capitalisation, consistent track record of profitability, impeccable asset quality, and the challenges emanating from its dependence on wholesale funding”, according to a statement by the agency.
The proceeds of the issue will be used to finance purchases of rolling stock such as locomotives and wagons, which will be leased to the ministry.
The lead managers were Barclays, Bank of America Merrill Lynch, Citi, Deutsche Bank and J.P. Morgan.