Syndicate Bank, one of India's oldest commercial banks, has sold a $400 million 5.5-year bond as investors scramble to hold South Asian notes amid improving fundamentals, reinforcing the great rotation back into emerging market credit as US Treasuries plunge to a year-to-date low.
The bank priced the note at Treasuries plus 240bp, which is 25bp tighter than initial price guidance. This is close to fair value of its existing paper maturing 2018 that were trading at a G-spread of 230bp prior to the announcement, according to a source familiar with the transaction.
This was a result of buoyant demand for the offering, which saw the order book touch $3 billion from 225 accounts, according to a term sheet seen by FinanceAsia. As a result, the issuer was able to upsize its bond offering by $50 million, the source said.
“Investors are still underweight India and are going to look to continue to invest here,” the source said. “It’s going to take a good deal of time for supply to catch up to demand.”
For the first time in 30 years, India has avoided electing a divided government, giving the Bharatiya Janata Party (BJP) a decisive victory in the parliamentary elections. The landslide results enable the BJP, under the leadership of incoming prime minister Narendra Modi, to form a national government on its own without the need to form a coalition.
Returning market confidence has caused spreads of overall Indian credit to tighten by up to 80bp post-election, say syndicate bankers. But a combination of this and falling US Treasury yields have prompted bondholders to question whether valuations offered by the South Asian country are too tight.
However, sources close to the transaction said that an initial capped offering of $350 million for Syndicate Bank’s deal helped address this concern.
The 10-year Treasury yield fell to a 2014 record low of 2.44% on Wednesday, the lowest yield since July last year on a closing basis, according to Bloomberg data.
Quality investors
Fund managers subscribed to 40% of Syndicate Bank’s paper, followed by financial institutions with 37%, corporates with 13%, private banks with 6% and the public sector with 4%, indicating large participation from quality investors.
Asian investors bought 71% of the bank’s notes, followed by EMEA with 25% and offshore US investors with 4%.
So far, Indian financial institutions have raised $3.1 billion year-to-date, a 32.6% drop from last year’s volume of $4.6 billion during the same period, according to Dealogic data.
“If you think about where we were just six months ago and how the theme in the fourth quarter was all about North Asia and that Southeast Asia was doomed, that has now changed,” said a Hong Kong-based syndicate banker. “We have seen a rotation in sentiment and a relatively insatiable demand for India and Indonesia credit.”
Emerging markets experienced short-term pain last year. Last August, investors were weighing the prospect of the US Federal Reserve tapering its monthly bond purchases and the implications this had for countries such as India and Indonesia, which rely on foreign financing to fund their high current account deficits.
Both the Indian rupee and the Indonesian rupiah responded, dropping 7.4% and 8.2%, respectively, against the US dollar from the beginning to the end of August 2013.
In secondary markets, Syndicate Bank's new notes tightened by an additional 5bp to trade at 230bp over Treasuries, according to Bloomberg data.
Citi, Deutsche Bank, HSBC, SBI Capital Markets and Standard Chartered were the joint bookrunners of the transaction.
