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Corporate BondsPrivate debt

Adani raises first US PP from India for a decade


Adani Transmission has priced a $310m US private placement, becoming the first Indian company to raise money in that market since 2007. Although some investors still feel scarred by an Indian incident a decade ago, many see this as the dawn of an Indian PP revival.

Adani Transmission claims to be India's largest private electricity transmission company, with over 14,000km of power lines and over 3m customers. It is part of the Adani Group, whose operations range from financial services to defence. Adani Transmission made Rp28.6bn ($400m) of operational Ebitda in financial year 2019, from revenue of Rp73bn ($1bn).

Bank of America and Barclays arranged the transaction, which has been almost a year in the making. According to two sources familiar with the situation, Barings, Cigna, HSBC Global Asset Management and MetLife bought the 30 year amortising debt. 

This was the first time MetLife's investment arm had ever bought an Indian private placement, two sources said.

"One factor [for these investors] was relative value over other infrastructure trades [in Australia and North America]," said a source close to the deal. "Another related reason is diversity, and the other is this deal was run like a club transaction, so these investors can get large amounts."

This is the first US private placement transaction from India for over a decade. “Back in the day we saw Indian Oil, Indian Railways, Reliance and Tata Chemicals — most were brought by Bank of America and/or Barclays,” said a private placement banker in September.

“After a little run of Indian deals around 2005 to 2008, banks went crazy, running around India looking for borrowers to bring, including my bank,” said another arranger in New York in November. “But once we got into it, we realised [the deals] were a nightmare to run and the fees were terrible — plus borrowers from that region found attractive funding conditions in Asia.”

Several sources said there had been a particularly tricky situation after Reliance Energy (renamed Reliance Infrastructure in April 2008), a subsidiary of Reliance Group, had issued $150m of 10 and 12 year US private placements in October 2006.

“When the group was split between the Ambani brothers, [the subsidiary] went to Anil Ambani and it lost its investment grade rating,” one source said. Reliance Energy's PP documents included a clause stating that if the borrower lost its investment grade rating it would seek to prepay the notes.

Indian rules require that the central bank should sign off any prepayment to overseas investors if the average maturity of debt is above five years. (That has now been extended to seven years.) In Reliance Energy's case, the Reserve Bank of India rejected its offer to prepay. 

This left institutional investors holding assets rated NAIC 3 (equivalent to speculative grade) until the debt matured a decade later.

This stuck in the minds of US private placement investors and proved problematic for Adani Transmission’s first foray, which began in early 2019. 

“A lot of people would not invest in this deal on principle [as a consequence],” said the first source. Another source said certain investors had a blanket rule that they were not open to Indian deals.

Guardian Life, L&G, Macquarie and Pricoa declined opportunities to participate, though whether or not this was due to previous experiences with Indian issuers is not yet clear.

Adani Transmission has issued several bonds in dollars, including a $500m 16 year in November 2019. It was priced to yield 4.295% and is now trading at 4.19%. The PP pricing was based on that, a source close to the deal said. 

Covenants include a debt service coverage ratio, a cash trap and a requirement to debt filing every 12 months, and compliance certificates every six months.

These requirements are in line with the levels of disclosure an infrastructure company in Europe or the US would expect to make when dealing with institutional investors in the West — or what investors in Adani's public dollar bonds require. But this level of transparency is more than was necessary for Adani Enterprises' listing on the Indian National Stock Exchange, the sources said.

The Adani Group conglomerate, founded by its chairman Gautam Adani in 1988, has interests in many fields, including energy, mining and transport. Subsidiaries of the group started capital markets programmes in 2013, mostly issuing 144A/Reg S bonds, in a bid to move away from short term lending from local banks and build long dated and international debt profiles.

“Adani has a long interest in infrastructure and investors and the West knows that,” the first source said, adding that he knew four other large institutional investors that would consider buying Adani debt in the not-too-distant future. 

Gautam Adani will now make trips to the US every May and November to meet existing investors in the new PP and Adani Group public bonds, as well as prospective investors.

Several participants are excited by the opportunities this transaction could present. 

"There are a good number of strong, founder-owned infrastructure companies in India that are sought-after assets," said a US PP banker. He added that this could be the start of a slew of Indian issuance in the Western private markets.

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