April 12, 2019 / 9:06 AM / a month ago

Indian Samurai market fizzles

* Loans: Long-term loans find few takers after recent Japanese borrowing spree

By Chien Mi Wong and Wakako Sato

HONG KONG/TOKYO, April 12 (LPC) - Indian companies are finding it harder to raise yen-denominated Samurai loans as Japanese lenders show signs of fatigue after a borrowing spree targeting Japan’s low borrowing rates and abundant bank liquidity.

Top firms from the sub-Continent have raised US$2.65bn of Samurai loans in the last 18 months, mostly at maturities of seven years or more, to reduce borrowing costs and extend maturities, but appetite for the deals is waning.

“Everyone has had enough of Indian Samurai deals,” said a Tokyo-based senior banker said.

NTPC, India’s largest power utility, started the rush for Samurai loans in late 2017, but its second visit in early April was tougher. Only Aozora Bank joined its US$300m-equivalent 10-year Samurai loan in general syndication.

In March, state-owned Power Grid Corp of India also drew a weak response to its debut ¥22bn (US$201m) 12-year term loan, the longest maturity seen on a Samurai loan to date. Only Aozora and Bank of Yokohama committed to the deal in general syndication.

Both deals point to a slowdown in Samurai loans as Japanese lenders struggle with Indian country limits.

“We are asking regional banks to expand their country limits for India but it is not so easy,” the Tokyo-based senior banker said.

As a result, Power Finance Corp and Indian Railway Finance Corp have postponed syndication of loans totalling US$450m indefinitely.

Japan’s four megabanks prefunded a five-year US$150m-equivalent Samurai loan for Power Finance Corp and a US$300m-equivalent seven-year deal for IRFC, but general syndication is now on hold.

The next test of demand is likely to come from privately-owned Indian conglomerate Reliance Industries, which is currently testing the market with a US$2.25bn deal.

The deal includes tranches totalling ¥55.5bn and pays all-in pricing of 88.5bp and 91.5bp based on interest margins of 72.5bp and 75.5bp over yen Libor, with average lives of 5.25 and 5.5 years respectively. (See India Syndicated loans.)

“There is some sense of fatigue,” a Singapore-based loans banker said. “We will have to time the launch of future transactions properly to ensure we will be able to draw liquidity and close a successful deal.”

LONG TENORS LANGUISH

Japanese lenders continue to seek overseas assets in search of higher returns, but tightly-priced loans with long 10-year plus tenors are losing their appeal.

“The 10-year tenor is too long and pricing is no longer attractive,” a banker at a Japanese regional bank said.

India’s state owned companies have enthusiastically embraced long-term fundraising in Japan’s cheap and highly liquid loan market. Tightening cross-currency swaps and pent-up demand for higher-yielding assets also opened a window for international borrowers to save on their funding costs.

Power Grid’s 12-year loan is the longest unsecured Samurai loan for an Indian company. The deal offered top-level all-in pricing of 110.8bp based on an interest margin of 98bp over yen Libor and an average life of 9.75 years.

NTPC’s latest deal pays top-level pricing of 114.5bp based on a margin of 102bp and weighted average remaining life of 10 years.

The company’s ¥39.42bn (then US$370m) 10-year Samurai loan of April 2018 previously had the longest tenor, and attracted eight banks in general syndication.

The strong response to that loan contrasts with the weak response to NTPC’s current loan, despite a 10bp uplift in pricing.

The yen-denominated loan had the minimum 10-year tenor required to raise funds via offshore debt in compliance with the Reserve Bank of India’s external commercial borrowing rules at the time. The RBI lowered its minimum maturity requirement for most borrowers to five years in December 2018.

Reporting By Chien Mi Wong and Wakako Sato; Editing by Prakash Chakravarti and Tessa Walsh

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