Three more Indian banks are considering issuing US dollar denominated bonds following Syndicate Bank’s roadshow announcement on Monday. Global sentiment on Indian bank credit is improving and the deals would be received well, according to analysts.
Syndicate Bank will meet investors in Singapore and Hong Kong this week and London next week, with a view to issuing a Reg-S, US dollar bond. The Indian lender has hired Citi, Deutsche Bank, HSBC, J.P. Morgan and Standard Chartered for the roadshow.
In addition, Bank of Baroda and Canara Bank are looking at a possible US dollar bond, according to two bankers, with the latter planning to raise up to US$1 billion to fund overseas expansion. Indian Overseas Bank (IOB) is also considering a US dollar bond, though not in the immediate future.
“We have some plans, though we have still not finalised whether we are going to issue. It depends on market conditions, but we are ready to take a call on that,” said a banker at Canara Bank. Calls to Bank of Baroda and IOB were unanswered by press time.
There was some concern that Syndicate Bank would not receive a good reception, as spreads on the US dollar bonds of Indian banks have widened by around 2bp to 3bp per day since Monday, when news of the lender’s roadshow became public.
“There has been a bit of profit taking for three reasons. More supply is being announced, we’ve seen the tights, and Treasuries are drifting higher. So you’d expect people to be selling, or at least not to be buying. Everyone’s waiting for the [Ben] Bernanke speech tonight so the momentum has stalled, hence the pullback,” said a Singapore-based trader at a global bank.
Ten-year US Treasury yields have risen over the past month from 1.69% to 1.93% at the time of going to press, according to Bloomberg data.
However, these negative indicators are likely to be temporary and overall the market will become more conducive to US dollar Indian bank credits for several reasons.
Firstly, while a few more banks are mulling US dollar bonds, supply has already been fairly strong this year and many banks have already completed their dollar fundraising, according to a DCM banker on the Syndicate Bank deal.
Year-to-date, there has been US$2.35 billion of supply in dollar-denominated paper from Indian banks, compared to just US$497 million over the same period last year, according to Dealogic.
To date this year, Bank of India, Export Import Bank of India (Exim Bank), HSFC Bank, IDBI Bank, State Bank of India and Union Bank of India have all come to the dollar market in relatively large sizes.
Indian banks tend to come to the market in groups, with a break between each batch. Last August, for example, ICICI Bank, IOB and Union Bank of India (UBI) all came to the international market within the space of a week.
This year – between Feburary 27 when HDFC bank came to the market and April 22, when Union Bank of India priced the most recent US dollar deal from an Indian bank – there was a fairly steady stream of supply with no more than three weeks in-between each deal; Bank of India and IDBI came within a week of each other.
However, there has now been a gap in issuance of more than six weeks, which is enough time for the market to take a breather and rebuild demand, according to the banker.
Reinforcing this view is the fact that demand has been strong for the Indian corporate credits that have come in the interim. At the time of going to press, ‘BB’ rated Vedanta Resources is in the market with a dual-tranche US dollar 144a and Reg-S benchmark 5.5-year and 10-year deal. The paper has received very strong support, according to bankers.
Another reason why Indian bank paper is likely to get such a good response is the oversupply of China paper in the Asian US dollar market, which leaves investors keen for diversification plays.
Finally, analysts cite macroeconomic progress in India as a reason to be positive on Indian US dollar credit, particularly from the banking sector.
“We believe sustained progress on the fiscal position, inflation, the current account and growth could lead the rating agencies to reassess the sovereign’s rating outlook later this year,” said Krishna Hegde, head of Asia credit research at Barclays.
“While spreads of Indian issuers have compressed in recent weeks, we believe India credit, especially financials, can continue to outperform versus Asian credit benchmarks. Our view is driven by the bottoming in activity data and optimism on the macro front.”