SBI gives Malaysian bond investors a taste of India

As international credit conditions worsen, State Bank of India manages to raise the equivalent of $162 million in Malaysia in the first ringgit deal by an Indian borrower.
State Bank of India (SBI) succeeded in pulling off a M$500 million ($162 million) deal yesterday, raising five-year funds at a yield of 4.9%, or the equivalent after-swap rate of just under 200bp over Libor, according to sources close to the deal. The deal marks the first time an Indian borrower has raised funds in Malaysian ringgit, and comes on the heels of another ringgit bond issued by Export-Import Bank of Korea a fortnight ago.

The transaction was handled by HSBC Bank Malaysia and is another demonstration that Asian issuers can tap funds in size in Malaysian domestic currency despite the mayhem in international markets. Global markets have remained stubbornly shut in the face of deteriorating credit conditions.

The borrower initially looked to raise between M$500 million and M$1 billion, although given onshore market volatility and "the importance of establishing a well-placed debut for the sector", it was judged more prudent to launch the deal at a size of M$500 million.

An initial whisper as tight as 4.65% was circulated some weeks back but sources close to the deal say that global volatility and developments onshore, including the unexpected outcome of the elections, led to the deal being launched at 4.9%.

The deal priced 40bp to 50bp behind where similarly rated domestic credits are trading, which is in the region of 4.4% to 4.5%. However, market specialists argue this is the first triple-B rated borrower to issue bonds in Malaysia, a country which has previously only bought either offshore paper from supranationals or highly rated bonds from an issuer such as Kexim and Gulf Investment Corporation. Nonetheless, SBI does benefit from sovereign support and was domestically rated AA+ by Malaysia Rating Corporation.

Meanwhile, rival bankers also argue that the Libor funding level after the swap was actually between 230bp and 243bp over Libor, using the basis level that appears on the screens. However, another source not involved in the transaction says: ôThe real level is where people are actually prepared to enter into the swap, which is not reflected on the screens. Only the institution performing the swap will know that level.ö HSBC executed the swap.

Either way, SBI priced well inside its five-year CDS, which was trading at 250bp yesterday, and priced substantially inside what the dollar market could have offered, diversifying its investor base in the process. Ten investors participated in the deal, with 47% of the funds allocated to insurance companies, 43% to fund managers and pension funds, and 10% to banks.

Regarding future issuance, one observer notes that it will grow harder to bring offshore borrowers to market as investors become more discerning and selective as a result of the increasing choice of offshore credits planning to come to market. Meanwhile, the question still remains regarding how long the Malaysian market will offer attractive funding levels relative to dollars in the face of an increasing supply of foreign paper and a vulnerable swap rate.

However, given that the international markets are shut, price may become less of an issue than access, and right now Malaysia is open.
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