Lighting up the market
Only US$5.5bn of high-yield G3 bonds were sold in Asia in 2023, as high US dollar rates made offshore funding too expensive for many issuers and the struggles of China’s property developers weighed on the market.
When India’s ReNew Energy Global hit the market with a US$400m 3.25-year non-call 2.25 green bond in April, Indian borrowers were still facing increased scrutiny as Adani Group’s US dollar bonds sold off following the publication of short-seller Hindenburg Research’s report. Globally, markets were dealing with the knock-on effects of bank failures and investors were generally nervous, making them reluctant to take exposure to high-yield paper.
These difficulties made fair value for ReNew’s new notes hard to pin down. The company’s previous note, a 4.5% 2027 sold in early 2022, was trading at a cash price of 82.5 when the new bonds were announced. India had not seen an offshore high-yield transaction in more than a year, so there was no recent reference point. Investors and analysts thought the new bonds should price anywhere from the high 7% area to above 9%.
ReNew was cautious in its approach, watching the market for about a month, before opening books with initial guidance at 8.5% area. When final guidance was announced, the company gave some buffer at 8.2% plus or minus 5bp, as opposed to the usual practice of coming out with a single number. The bond landed at the tight end at 8.15%, and priced at 99.382 with a 7.95% coupon.
The order book reached US$1.5bn at final guidance and dropped to US$900m at reoffer – still an impressive oversubscription in the market conditions.
US-listed ReNew benefited from its track record as a repeat issuer in the popular renewable energy space, but also sought plenty of feedback from investors in structuring the deal. While investors were keen for a slightly longer tenor, ReNew opted to keep it short. The bond was secured by a 100% share pledge from the issuer, subsidiary Diamond II, with 60% security cover from fixed assets. The security and guarantee helped provide comfort to skittish investors.
The notes, rated Ba3/BB– (Moody’s/Fitch), were broadly distributed, with some 35% going to Asia Pacific, 34% to EMEA and 31% to the US, and 74% allocated to asset managers, 12% to hedge funds and brokers, 11% to insurers and official institutions, and 3% to private banks and others.
The bond held up well in the secondary market and set a fresh benchmark that reopened the high-yield market for India.
Barclays, Deutsche Bank, HSBC, JP Morgan, Standard Chartered and BNP Paribas were the global coordinators. They were also joint bookrunners with DBS Bank, Mizuho, MUFG, SMBC Nikko and Societe Generale.
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