The Rs5 billion, 10-year bond was launched in February. It was designed to provide local banks, mutual funds and insurance companies with the chance to diversify their portfolios into international AAA rated credits. Investors jumped at the chance as total bids reached over Rs10 billion. The issue achieved a broad distribution, with up to 60% of the bonds placed with banks, 21% with insurance companies and 19% with mutual funds.
As well as being the ADB's first bond deal in the Indian domestic market, it was also the first time the ADB had tapped the local bond market of a developing member country.
“This pioneering transaction will enable ADB to accomplish a key developmental goal,” says Liqun Jin, vice-president at the supranational. “ADB will be able to offer private-sector borrowers in Indian rupee loans for projects in need of long-term local currency financing. These rupee loans provide the most effective protection against exchange rate risk, particularly as most ADB-finance projects generate revenues in local currency.”
In 2003, the ADB's local currency lending in India totalled about Rs5 billion for three private-sector projects in sectors such as infrastructure, healthcare and housing finance.
The bond, which was priced at par, underscores the ADB's confidence in the Indian capital market, according to Jin. This, together with the new standards created through the issue in respect of regulatory framework, documentation, disclosure, clearing and settlement and pricing benchmark, should facilitate issuance by other foreign borrowers, he adds.
The transaction should also help enhance liquidity in the domestic swap market, particularly as the ADB plans to undertake interest rate swap transactions for asset and liability management purposes.
Thierry de Longuemar, the ADB's treasurer at the time of the bond, says: “This issue is the first step in ADB's strategy to tap the domestic bond markets of its developing member countries. ADB will consider issuing other local currency bonds, particularly in those developing member countries where the bond markets are sufficiently developed, and suitable projects with local currency financing needs can be identified.” The Bank is close to getting the green light to issuing a Thai baht bond. It is also exploring opportunities in China.
HSBC and ICICI Securities arranged the Indian bond. They carry a semi-annual coupon of 5.4% a year to yield 17bp over the 7.37% Indian G-Sec due April 2014. Before launching the issue, the ADB and the lead arrangers conducted an extensive roadshow to present the deal to key institutional investors in Mumbai, New Delhi and Kolkata.
Issuer: Asian Development Bank
Date of issue: February 27, 2004
Amount: Rs5 billion
Maturity: 10 years
Coupon: 5.4%
Credit ratings: AAA (Moody's); AAA (S&P)
Lead managers: HSBC, ICICI Securities