June 2, 2014 / 9:11 AM / in 4 years

Bond investors vote for India

* Spreads of offshore Indian debt touch multi-year tights

* ICICI Bank achieves lowest premium since 2007

* Issuers wait for even better prices

By Neha d‘Silva

SINGAPORE, June 2 (IFR) - Indian banks moved quickly last week to take advantage of a rally in Indian credits on hopes that the country’s newly elected government will succeed at key economic reforms.

The rally pushed spreads on the State Bank of India’s five-year US dollar bonds, a proxy for the sovereign and the banking sector, to 179bp over US Treasuries last week, its lowest level since July 2011.

The upbeat environment prompted state-owned Syndicate Bank and private lender ICICI Bank to jump into the US dollar market, allowing the latter to tap at the tightest spread for an Indian issuer since 2007.

Yet, some banks are said to be hanging back, expecting bonds to rally further after the opposition Bharatiya Janata Party’s decisive win on May 16. Debt capital market bankers are urging lenders not to hesitate.

“From a pure primary market perspective, it cannot get better than this for Indian issuers,” said a Hong Kong-based banker.

Still, not all borrowers appear to be ready. “You would think that would be the case  but, judging from the conversations we are having with issuers, it does not feel that this is imminent frustratingly,” said a Singapore-based banker.

The banks may be paying attention to analysts, who expect rates to keep falling as the BJP’s National Democratic Alliance begins enacting promised reforms to spur India’s economic growth.

“Liquid benchmarks could compress a further 5bp-10bp from current levels on the NDA’s articulation of its policy priorities over coming weeks,” Barclays said in a recent note.


SBI’s five-year CDS, viewed as a proxy for India’s risk of default, has fallen to 218bp from 237bp earlier in May. Barclays expects the benchmark to compress another 20bp-30bp over a six-month horizon as BJP’s reform agenda is rolled out.

Syndicate Bank and ICICI Bank, nonetheless, achieved attractive funding for their bond sales last week.

Syndicate Bank, with ratings of Baa3 from Moody’s and BBB- from S&P, sold a US$400m bond to yield 240bp over US Treasuries. Larger private peer ICICI Bank reopened its 4.8% bonds due in May 2019 for a tap of US$250m at a spread of 185bp over US Treasuries. The bonds had expected ratings of Baa2/BBB- (Moody‘s/S&P).

ICICI Bank offers, perhaps, the best example of how much the election has lowered offshore funding costs for Indian issuers. The 4.8% bonds originally were issued in November at a spread of 355bp over US Treasuries. They have rallied seven points since the start of the year.

SBI offers a good illustration of how much the market has moved in a short time. In the second week of April, it sold a US$750m five-year bond at a spread of 205bp over US Treasuries. The spread was considered aggressive at that time even for India largest state-owned lender. Now, it compares poorly to ICICI Bank’s reopening. (Reporting By Neha d‘Silva; editing by Christopher Langner and Steve Garton)

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