Window for India dollar bonds cracks open with NTPC issue

The 10-year Reg. S bond, meaning it was open to overseas investors outside the United States, was priced after generating a robust $2.7 billion of demand more than a month after the state-controlled firm completed an investor roadshow.

A slew of companies had announced plans, mandated banks or completed investor meetings for possible overseas issues including state-owned Indian Oil Corp, Indian Railway Finance Corp (IRFC) and Rural Electrification Corp.

Private sector companies including Essar Group software services firm Aegis, Ballarpur Industries and Bharti Airtel, India's largest cellular carrier, were also in the process of raising U.S. dollar bond issues.

The offerings were put on hold when market volatility picked up and made investors skittish. The success of the NTPC deal may spur Indian issuers to bring the offerings back to the market.

"As worries about Greece's debt crisis have abated, we are seeing the investor appetite return, with the market getting some stability with the spreads tightening," a senior banker with a foreign institution said on Friday.

Indian companies raised $6.6 billion in U.S. dollar bonds overseas in the first half of 2011, compared with $2.6 billion in the same period a year earlier, attracted in part by lower yields overseas after India's central bank has raised interest rates 10 times since March 2010.

Anxiety over Greece and the Euro zone sovereign debt crisis put a brake on new issuance in June, with investors shunning risk for safe havens. India failed to complete a single dollar deal last month.

Indian banks, typically the country's most active offshore borrowers, will be slower to return to the market because of softening credit growth, the banker said.

NTPC's dollar bond was the third from Asia's power sector this week, after Hong Kong's CLP Power, a unit of CLP Holdings, and Korea Hydro & Nuclear Power Co completed deals.

The spread on NTPC's new bonds tightened by 10 basis points in the after market, a positive sign for demand.

WHO'S NEXT?

Market participants believe IRFC will be next to hit

the market after NTPC. In mid-June it mandated Bank of America Merrill Lynch, Barclays Capital, Citigroup, Deutsche Bank and JP Morgan for a $200 million to $300 million bond.

A week later Indian Oil picked BNP Paribas, Citigroup and Royal Bank of Scotland for a $500 million 10-year bond.

Both borrowers have yet to complete their roadshows, although in IRFC's case it is returning to the markets after completing a $200 million bond issue in March. It is unclear if it would press ahead with a second bond without a roadshow.

IRFC would need to be willing to complete a transaction at pricing levels that are more expensive than a month ago.

WILLING BORROWERS

Tighter after market performance of NTPC's bonds mirrors that of recent issues from other Asian credits such as Chinese gold producer Zijin Mining, the Government of Malaysia and CLP Power, suggesting that borrowers have paid up to get their deals done.

Praveen Kumar Goyal, Indian Oil's finance director, said that spreads are still on the higher side though the company is keeping its options open. Goyal said the company will decide next week on whether to go ahead with the bond issue.

Indian borrowers are known in the market to be especially price-sensitive and are reluctant to bring transactions in volatile markets that could upset pricing expectations.

Also, a market wary of borrowers that are not top-rated credits means first-time issuers such as Aegis and Bharti may prefer to wait.

Both are said by bankers to have mandated their debut offers at levels that are no longer realistic.

Aegis hired Deutsche Bank, Standard Chartered and UBS for a $300 million five-year bond in early June and held roadshows in late May and mid-June. The company will have to update its financials in the documentation of its bond if it pursues an offering after August 15.

Bharti hired banks in early May for a bond issue and completed investor meetings a month later.

It was looking to save at least 100 bps on its rupee funding levels and its lead bankers are said to have assured a 50 bps cost saving over its rupee funding, which is said to be around 9.80 percent to 9.85 percent for a 10-year borrowing.