India's Vedanta Resources is back in the news again. Late last week, the group’s $1.2bn five year deal was taken into senior syndication, with the leads sending out invitations to around 10 lenders. This followed the group’s attempt in early May to market an up to $2.5bn term loan ‘B’ in the US, which failed to gain traction after scant investor interest.
There was plenty to show that Vedanta didn’t really think its plan through. For starters, it had foolishly high hopes of obtaining a tight margin from a market that was not really ready to welcome it with open arms. It also failed to recognise that institutional investors look at it as an emerging market credit: the company may be listed in London, but most of its operations are in India.
American institutional investors are a picky lot. With its low credit rating, there was not much chance of Vedanta getting the support it needed. Whether it was a question of the borrower not listening to its bankers or not being given the right advice, all involved ought to have realised that Asian lenders should have been the first port of call.
Happily, the company should now expect a very different experience: in Asia, there are plenty of things working in its favour. First of those is the success of its latest bond. Last month it managed to pull off a $1.2bn 5.6 year deal. The coupon of 6% was the lowest ever for that tenor in a G3 currency deal from Asia ex-Japan.
At the same time, it also priced a $500m 10 year deal at 7.125%. Books for both were fully covered within the first few hours. And if that wasn’t enough, Standard & Poor’s subsequently upgraded its credit rating.
Secondly, the Asian market is bank-driven, and banks in the region are brimming with liquidity. The US market was uninterested in Vedanta because it was an Indian credit, but the company can definitely use this to its advantage in Asia. Indian companies have strong relationships with Japanese lenders, and they are likely to come out in support of this deal.
The banks leading the deal have also already signed and pre-funded the loan. This confidence in the company will encourage others to also come forward. The margin of 275bp over dollar Libor will doubtless prove attractive too, at a time when a large number of deals are priced at less than 200bp.
All of that looks good, but there is also plenty to learn from Vedanta's failed trip to the US. Other borrowers will also be better off focusing not only on a market they understand, but one that also understands them. Borrowers should pick banks that will provide the best advice — and they should listen to that advice.
Vedanta got a bloody nose in the US, but every move since has been in the right direction. Others would do well to take heed.