The Reg S deal was priced at 99.523% on a coupon of 5.875% to yield 5.939%. This equates to a spread of 140bp over comparable US Treasuries or 84-85bp over Libor on an asset swap basis.
Having kicked off roadshows with initial guidance of 145bp to155bp over Treasuries, the leads were able to tighten the range to 140bp to 145bp over as the deal gathered momentum throughout the roadshow schedule. Guidance was further revised Thursday morning in London to 140bp over.
Fees were undisclosed.
The transaction proved a textbook example of how to successfully execute a deal by using a fixed absorbable issue size and wide guidance to build momentum and leverage pricing.
ôIt was well run deal, if they were going to bring the pricing in, the borrower had to be firm with the issue sizeö says an observer. ôIf youÆre going to move pricing you canÆt play around with the issue size as well; too many moving parts would scare off investors.ö
The order book is said to have closed five times oversubscribed at the $1.5 billion level, with 105 accounts allocated paper. Geographically, the deal was sold 50.2% into Asia, 41.6% to Europe and 8.2% to offshore US accounts.
In terms of investor type, the book was sold 41.6% to banks, while fund managers took 37.6%, insurers 15.3% and retail accounts accounted for the 5.5% balance.
Once again NTPC managed to build a substantial bid among European investors. Last March it sold 45% of a seven-year dollar deal on the Contient. At the time, this marked an upturn in investor appetite towards offshore Indian debt after a relatively soft patch.
Bankers note that a portion of the new deal's success should be attributed to the steady growth of investor demand for Indian credit.
ôAt the moment, there arenÆt very many ways for investors to get exposure to India, especially on the corporate side,ö says one syndicate banker familiar with the deal. ôAnd a utility is certainly a good way to get sovereign related exposure.ö
Bankers say that even though NTPC's majority ownership by the Government of India was a key selling point for investors, the company is not likely to require any direct support from the sovereign. This is because as a stand alone entity, it enjoys a dominant market share and has a diversified asset portfolio.
The dealÆs most obvious comparable would be NTPCÆs own $200 million seven-year bond. That deal is a 5.5% January 2011 offering, which was bid at time of pricing at 123bp over Treasuries or 73bp of Libor. This means that the new deal comes 17bp and 11bp wider, respectively.
Another good comparable is Reliance Industries, which pierces the sovereign ceiling with a Baa2/BBB rating. The India petrochemicals group has a 2016 bond outstanding, which is currently trading at 123bp over Treasuries or 90bp over Libor.
Given that Reliance has an investment grade rating two notches higher than NTPC's non-investment one, the differential between the two is remarkable.
NTPC's ability to secure such tight pricing is a function of the fact it is the closest sovereign proxy in a market where there is no sovereign benchmark and considerable pent up demand for one. Nevertheless, investors will be watching closely to see if the positive momentum NTPC has generated in the primary market will flow through to secondary trading as well.
NTPC's credit curve is also tight compared to other Asian bonds with similar maturity differentials. For example, Baa3/BBB-rated, Chartered SemiconductorÆs five-year to 10-year curve is worth 41bp.
Further up the ratings scale, A3/A rated Hutchison has a curve differential of 16bp between its outstanding four-year and eight-year bonds. On a credit default swap basis, HutchÆs five to 10-year curve is worth 29bp, while Baa1/BBB+ rated ThailandÆs is worth 18bp.
This marks the first time an Indian corporate has issued a 10-year benchmark bond since the Asian financial crisis, and helps to set a central benchmark for other Indian borrowers.
The deal is the first drawdown of NTPC's newly established $1 billion MTN programme, and will be used to expand the capacity of its operations. Earlier this year NTPC said it planned to increase capacity to over 66,000 MW by 2017.
Currently, NTPC has hydro power projects under construction in Koldam (800 MW), Loharinag Pala (600 MW), Rammam (207 MW), Tapoban (520 MW) and Lata Tapoban (108 MW).