A challenging economy and the threat of a sovereign downgrade meant that Indian issuers found it difficult to access new investors. For finding new pockets of demand and showing the Singapore market is open for business, Indian Oil Corp’s S$400m 10-year bond is IFR Asia’s India Capital Markets Deal of the Year.
State-owned refiner Indian Oil Corp has long been one of India’s savviest – if most price-sensitive – issuers. While it was not the first Indian borrower to visit the Singapore market, its debut stood out for both its size and tenor, setting a benchmark for the country’s corporate sector.
The 10-year benchmark from Baa3/BBB– rated IOC built a yield curve that other Indian issuers can now follow – no mean feat for a debut deal in the city state.
Additionally, the company was the first Indian issuer outside the banking sector (and only the third overall) to tap the Singapore dollar market, while its deal was the biggest in the local market from any foreign corporate in the period under review. The issue also came with the longest tenor in the Singapore dollar market for any senior bond by a foreign issuer in the review period.
The transaction followed a highly successful one-day roadshow in Singapore. Joint leads DBS Bank and Standard Chartered launched the deal with initial pricing guidance of 4.5%, equivalent to about Libor plus 300bp, or about 262bp over the 10-year Sing-dollar swap offer rate, quoted at around 1.88%. There were no relevant comps for IOC in the 10-year Sing-dollar market. So the comps the leads used included IOC’s outstanding US-dollar-denominated 2021s, which were indicated at a Z-spread of 305bp.
NTPC’s US-dollar 2022, shown at Z plus 295bp, or 250bp over SOR, was also used as a comp. At these levels, the IOC bond yields offered a small new-issue concession at the initial guidance.
The bond proved a huge draw and garnered orders of over S$3bn (US$2.4bn). The deal came at 4.10% – the low end of final guidance of 4.10%–4.15%.
On a swapped spread basis, IOC’s pricing was 36bp inside the secondary trading level of the refiner’s outstanding US-dollar bonds due in 2021 and 23bp inside where NTPC priced its 10-year US-dollar paper. This meant the IOC trade was the most tightly priced 10-year issue from India this year – in any market.
Yield-starved investors jumped at the chance to earn over 4% from an investment-grade name, and the deal’s size meant it required no illiquidity premium – in contrast to the borrower’s experiences in the dollar market, where investors expect and additional incentive for a sub-US$500m issue.
The issue was priced on an accelerated timeline and bookbuilding completed intra-day after a seamless execution process lasting less than six hours. Over 100 investors participated. Private banks made up 60% of allocations, with fund managers at 22% and banks 18%. Geographically, 25% of the orders came from offshore accounts, with Singapore accounting for the rest.
The bid remained strong in the secondary markets as the bonds broke to trade at 100.20/100.35. The bonds were priced to yield about 221bp over Sing-dollar SOR.
The deal turned out to be a win-win, both for investors and for the issuer. IOC attained its objectives of establishing a benchmark curve in Singapore, and diversified its investor base at attractive funding levels. Investors watched the yield shrink, with the notes closing out the review period at a yield of 3.95%.
IOC is India’s flagship national oil company and is 78% state owned. An event of default can be called if, at any time, the Indian Government ceases to own at least 51% of IOC’s voting shares.
This transaction will prompt further deals because IOC and the two previous Indian issuers, IDBI and Export-Import Bank of India, made substantial savings in Singapore versus the US-dollar market, proving that the city state offers more than just investor diversification.
In late August, IDBI sold a S$250m 3.65% three-year bond to save some 60bp against its outstanding US-dollar paper. Exim India came next with a five-year issue of S$250m at 3.375% in September.
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