ONGC sells $1 billion dual-tranche bond

India's largest oil and gas explorer returns to the international capital markets to seek fresh capital to refinance an acquisition loan.

ONGC Videsh, the overseas arm of India's biggest oil-and-gas explorer ONGC, issued a dual-tranche bond on Tuesday after average spreads on the country's US dollar-denominated bonds hit the lowest level in almost a year.

The Reg S sale is the state-owned oil company's first international bond offering in more than two years, raising $1 billion from a five-and-a-half year bond and a 10-year bond.

Despite scarcity of new supply from Indian corporates, the company, rated Baa2/BBB- by Moody's and S&P, paid virtually no new issue premium for the issue, highlighting its persistent stringent cost control.

Orders exceeded $3 billion at peak before the release of final price guidance, primarily driven by Asian investors outside of the country, two sources familiar with the transaction said. 

"The shorter-dated bond captured a mix of private banking accounts and institutional investors, while the longer-term bond garnered more orders from life insurance companies, given scarcity of quality investment-grade Indian credits offering decent yield to investors" one of the sources commented.

According to Dealogic, Indian companies have raised $3.4 billion in 10 deals internationally, compared with $8.8 billion through 33 transactions last year and 2014's $18.8 billion from 45 issues.

Unsurprisingly, both tranches were priced at the tight end.

Initial guidance of the five-and-a-half year was set 195bp over Treasuries, before tightening to 175bp-180bp. Final pricing of the $400 million January 2022 was fixed at par on a coupon of 2.875%, or 175bp over Treasuries, according to a term sheet seen by FinanceAsia.

For the 10-year tranche, the notes were initially marketed at 235bp over Treasuries, before guidance was tightened to 220bp over. Final pricing of the $600 million July 2026 note was set at 99.81% on a coupon of 3.75% to yield 3.773%, or 220bp over Treasuries.

The closest comparables were its existing $750 million July 2019 and $500 million May 2023 notes, which were trading 161bp and 171bp over Treasuries, or a G-spread of 146bp and 191bp, respectively.

Other comparables include NTPC's BBB- rated 4.25% $500 million February 2026 bond, which was trading 211bp over Treasuries, or a G-spread of 212bp. 

That suggested the company priced the new offering flat to its existing secondary curve. 

The company plans to use the fresh proceeds from the debt sale to refinance its existing $1.2 billion bridge loan to fund the acquisition of a 15% stake in Russia's second-largest oil field, Vankor in Siberia.

In a note dated July 14, Moody's said it expects the company's borrowing to increase in the next 12 months because it may further buy another 11% stake in Vankor. 

Joint global coordinators of the transaction were Citi and Standard Chartered, while DBS, Mizuho Securities, MUFG and SMBC Nikko were joint bookrunners.

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