SBI debuts in the 144A market with a $1 billion deal

Against a positive market backdrop, State Bank of India’s new 2015 bonds tighten 15bp to a spread of 275bp in the secondary market.

The State Bank of India (SBI) priced its debut 144A issue last Thursday night in the form of a benchmark $1 billion bond. This is the first 144A/Reg-S offer to be priced by a quasi-sovereign from India and may thus have opened the door to a new base of US investors for such issuers. For the accounts buying into the deal, the new SBI paper is as close to an Indian sovereign that they can get in the 144A market.

The bonds were issued by SBI's London branch and have a maturity date of July 27, 2015. They pay a coupon on 4.5% and were reoffered at 99.708 to yield 4.566%.

The offering took place over Wednesday and Thursday last week. When the new deal was announced, SBI's existing 2014 bonds were trading at around 240bp to 245bp. Adjusting for the longer tenor of the new bond, the deal was launched together with a whisper that it would price at a high 200bp to 300bp over Treasuries, which attracted a global order book of over $2 billion.

On Thursday, formal guidance was released stating a spread of 285bp to 300bp. By the close of Asian trading that day, the order book had grown to $3.5 billion. As US accounts came in, the final book was pushed up to $4.5 billion, which was where it closed after attracting orders from 360 accounts.

The bonds finally priced at a spread of Treasuries plus 290bp.

Despite viewing the transaction to be good, Brayan Lai, credit analyst with Credit Agricole CIB, said he had expected the deal to be capped about 40bp tighter than where it printed.

"I do feel it's important to give some kind of a concession. Having said that, this left enough juice for investors in the secondary, which has rallied some 20bp," he said.

The only comparable used as a benchmark for the pricing was SBI's own 2014 bonds. ICICI Bank's recent 144A issue was disregarded since ICICI is a private-sector bank, while SBI is a state-owned lender.

US investors took 55% of the deal, followed by Asian investors with 28% and European accounts with 19%.

Fund managers were allocated 63%, private banks 15%, banks 9%, insurance houses 4% and other types of investors 9%. Arrangers noted the high allocation into the US, saying this indicated that the bonds were placed "in the hands of high quality buy-and-hold accounts".

Since pricing, the bond has tightened by 15bp to close Monday's session in Asia at 275bp over Treasuries. The tightening is a reflection of improvements in the overall market over the latter part of last week. Since Thursday morning the iTraxx investment grade index has tightened by 8bp to 118bp, which is where it was last seen on the screens in Asia yesterday.

"If you take away the broader market performance, the stronger performance is also a reflection of the healthy distribution and subscription and the good investor interest in the secondary market," said one banker.

The next deal to come out of India is set to be the Industrial Development Bank of India. Elsewhere, China Resources Power Holding is expected to launch a Reg-S deal through joint lead managers Goldman Sachs and Morgan Stanley.

The reason why Indian banks are returning to market at this point is simple; they have ongoing funding needs to meet. As one banker noted, when borrowers see their counterparts issuing bonds and spreads are tightening in an active new issue market, it will bring them out of the wood work.

"This is not just Indian banks," said one source, adding that deals are coming regardless of sector, pushed by issuers that may have put deals on hold back in May.

Bookrunners for the SBI 2015s were Bank of America Merrill Lynch, Citi, Deutsche Bank, HSBC, Royal Bank of Scotland and UBS.

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