September 21, 2018 / 8:34 AM / 7 months ago

Lenders spurn tightly priced Tata holdco

* Loans: Tata Sons finds few takers in syndication for US$1.5bn loan

By Prakash Chakravarti

Hong Kong, Sept 21 (LPC) - Tata Sons, the holding company of Indian conglomerate Tata Group, has drawn a poor response for a US$1.5bn multi-tranche loan, in a sign of resistance from lenders to Indian borrowers pushing for aggressive terms.

The three-tranche loan, split between maturities of four, five and six years, has struggled to attract lenders since launching general syndication in early June, with only Mega International Commercial Bank committing US$20m–$25m.

This has left the dozen banks in the arranger group with larger final holds than expected, although some admitted that the tight pricing was always likely to pose a significant hurdle for many retail lenders.

“Syndicating the deal was a steep challenge right from the outset given how aggressively priced it was,” said one senior loan syndications banker in Hong Kong. “The rarity value of the deal could not offset the super-tight pricing.”

The top-level blended all-in pricing was 103bp, 104bp and 113.7bp respectively based on a blended average interest margin of 90bp over Libor and a blended average life of five years.

Tata Sons last borrowed in its own name in the offshore loan market in April 2007, when it enjoyed a much better reception.

A dozen lenders, including seven mandated lead arrangers and bookrunners, participated in the US$150m seven-year bullet loan. It paid a top level all-in pricing of 57.5bp based on an interest margin of 52.5bp over Libor – before the global financial crisis later that year sent borrowing costs skyrocketing.

More than a decade later, Tata Sons returned to the market for a US$1.5bn loan, at the same time as other Tata Group entities were seeking financings.

In January, Tata Steel mandated 21 banks for a US$2.16bn six-year loan to refinance short-terms loans at one of its units in Singapore.

By early March, Tata Sons had picked nine banks to form the initial arranger group for the US$1.5bn loan. Meanwhile, Tata Steel decreased its deal to US$1.86bn by early April after raising US$1.3bn from a dual-tranche bond.

Tata Steel also received a poor response, despite a top-heavy arranger group, with only four banks joining in syndication. PRICING TOO TIGHT The liquidity freed up among lenders following the reduction of Tata Steel’s refinancing should have ensured a smooth ride for Tata Sons. However, the new financing proved too tight for the retail market.

“The pricing is not attractive to us as Tata Sons has reported weak financial performance and its leverage is relatively high. And we have alternative lending opportunities to the other Tata group entities,” said a Taipei-based senior loan banker whose institution had participated in a £640m (US$850m then) loan for Tata Motors in January.

That loan for Tata Motors attracted 20 lenders in general syndication. The company returned in June for a US$250m loan for a bond buyback. Also, this month Tata Power mandated five banks to lead a US$245m refi.

In the rupee loan markets, Tata Steel is seeking a giant Rs210bn (US$2.89bn) financing to take out a Rs165bn bridge loan that funded its acquisition of a controlling stake in Bhushan Steel in May. It is also expected to raise more funds for the acquisition of Bhushan Power & Steel, for which it is locked in a bidding war. BANK WOES Tata Sons is not the only Indian borrower to have struggled in syndication. Financial borrowers have suffered this year after the country’s largest banking fraud, first uncovered in late January, sapped confidence in the sector. The fraud of up to US$3.26bn engulfed Punjab National Bank, India’s second-largest state-owned bank, and other peers, souring sentiment among foreign lenders for Indian FIs.

As a result, loans for Yes Bank and State Bank of India toiled in the market, with the former taking six months to close a US$300m three-year loan and the latter failing to attract any commitments for a US$750m three-year facility in general syndication. The deals paid top-level all-in pricing of 105bp and 90bp, respectively. ( Reporting By Prakash Chakravarti; Additional reporting by Evelynn Lin; Editing by Chris Mangham and Vincent Baby)

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