NTPC makes bond market debut

State-owned power company tries to re-engage investor interest in Indian debt.

National Thermal Power Corporation (NTPC) priced its debut international capital markets deal yesterday (Wednesday) raising $200 million from a seven-year deal.

With ABN AMRO and Merrill Lynch as lead managers, the Ba2/BB/BB+ (Fitch) rated group priced its offering at 99.37% on a coupon of 5.5% to yield 5.61%. This equates to a Treasury spread of 203bp and Libor spread of 159bp. Fees total 20bp.

At this level, pricing was deemed fair, although slightly out of kilter with where it would trade relative to comparables such as IDBI and ICICI in the domestic bond market. However, neither of the latter two deals have performed well over the past week and NTPC did well to come out towards the tight end of guidance of 200bp to 210bp when the market momentum was not behind it.

IDBI, for example, priced a five-year bond a week ago at 99.653% to yield 4.82%. This equated to 185bp over Treasuries and 145bp over Libor. Yesterday it was trading 12bp wider on a yield basis at 4.94%, equating to about 192bp over Treasuries and 146bp over Libor

NTPC, has therefore, priced 13bp wider than IDBI on Libor basis. Accounting for the two-year maturity differential it has come flat on a like-for-like basis. In the domestic bond market it normally trades through IDBI.

At the time of pricing, ICICI was bid at 4.57% yield, equating to 155bp over Treasuries or 124bp over Libor. This means it has priced at a 35bp premium or about 22bp on a like-for-like basis. In the domestic market it normally trades flat to ICICI.

Market conditions aside, the main reason why NTPC needed to pay a slight premium was its rating. Although it has the same sovereign ceiling ratings as IDBI and ICICI from Fitch and Standard & Poor's, it is rated two notches lower by Moody's.

Specialists say the reason for this appears to be because the company's receivables are all rupee-denominated. The agency, therefore, decided to assign the Indian sovereign ceiling rating for local currency debt rather than foreign currency debt, which was upgraded from Ba1 to Baa3 in January. India is also one of the few countries worldwide where local currency debt is rated below foreign currency debt.

NTPC's order book is said to have closed at the $277 million mark with participation from 79 accounts. Most placed orders in the $1 million to $5 million range, with only a couple of orders topping $10 million.

By geography, NTPC's deal had a split of 50% Europe, 45% Asia and 5% US.

Since ICICI's trailblazing bond in October 2003, investor appetite for offshore Indian debt has been muted to say the least. And specialists add that a number of accounts that participated in the IDBI bond sat on the sidelines for the NTPC bond because they were disappointed with the former's secondary market performance.

But they conclude that NTPC should be satisfied with its bond market debut and given its large funding needs over the coming decade, the gruop is likely to be back within a year to further fill out its curve.

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