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Nimble IDBI paves way for others

01 Oct 2012

With a wide variety of funding exercises under its belt, IDBI Bank has a reputation among investors for a nimble attitude to funding. And as a result of the stability afforded it by government ownership, the bank is also something of an innovator for Indian issuers, writes Louisa Burwood-Taylor.

An innovative funder, development bank-turned-commercial lender IDBI Bank has a chunky funding target for this fiscal year of up to $2.5bn in domestic and offshore markets. The bank will focus its domestic funding on shoring up its capital ratios but is not afraid to tap a variety of different markets to reach its overall targets.

The bank wants to raise $1bn-$1.5bn in foreign currencies and Rs50bn ($900m) in the domestic market by the end of this fiscal year. So far it has reached $1bn in foreign borrowings, including a recently signed syndicated loan and benchmark dollar bond. It has yet to issue in the domestic market.

Offshore, IDBI plans to track different markets for the rest of the year to see whether they can provide cheaper funding opportunities than US dollar issuance. Even though the proceeds are most likely to be used for foreign currency lending and therefore unlikely to be swapped into dollars, IDBI still makes comparisons with dollar funding levels.

"We need to get some pricing benefit in order to go into these markets," says Melwyn Rego, executive director, IDBI Bank.

Foreign currency markets away from dollars also give the borrower more options on size. In the dollar market anything less than $500m is not considered a benchmark issue. Local markets give the issuer the opportunity to issue in small tranches rather than one chunky deal, says Rego.

"This also helps in reducing carrying costs by more closely matching the borrowing with the asset creation."

The bank has an adventurous track record. In November 2011, it became the first emerging market issuer to tap the offshore renminbi bond market. This year it was the first Indian issuer to print a public Singapore dollar bond, with a S$250m deal. It also re-tapped the Swiss franc market in March after opening it up to Indian issuers in 1987.

Being a trend-setter is important. "This is another strategic reason for IDBI Bank to tap new markets," says Rego. "By accessing these markets, we are opening them up for other Indian banks, as well as corporate issuers.

"I understand that immediately after our Singapore dollar issue, there were a number of banks that started to consider the market, and I would not be surprised if Indian issuers follow very soon. If that happens, we will be really pleased at having paved the way for other Indian issuers."

Highlighting the strengths of India as a credit and growing economy are important for IDBI to get funding, particularly in new markets. Its management roadshow in Singapore earlier this year was invaluable exposure and went a long way to getting the bank the pricing it got, according to a syndicate banker in Mumbai.

Rego agrees. "The roadshow was really very useful because it provided the platform to convey the India story and present the true picture of the Indian economy’s enormous potential," he says. "Today we are seeing that most of what comes out in the press is negative and often misleading. There is a need to put the record straight and convey facts which are backed by numbers. At the roadshows, we focused on this aspect.

"When we present the India story, we are not only helping our own cause, but are also setting the platform for other Indian issuers."

IDBI has a A$1.5bn MTN programme listed in Singapore, which helped it to execute a quick-fire deal in Singapore when pricing looked attractive. The bond was more than 12 times subscribed.

"This is one of the benefits of being a regular issuer," says Rego. "We were quick off the blocks when we saw a window of opportunity." The bank intends to increase the programme to $3bn soon.

IDBI enjoys fewer regulations than other Indian issuers regarding debt issuance and is allowed to issue domestic senior funding, unlike most banks in India. The regulator has allowed this because of the borrower’s funding of infrastructure projects in India, although the senior bonds have to be a minimum of five years in maturity.

In any case, IDBI prefers to issue lower tier two bonds that have the same rating and can boost its capital ratios, says Rego.

IDBI’s overall capital adequacy ratio was 14.6% at the end of March and its tier one capital was 8.4%. At the end of the fiscal year, the bank wants its tier one capital to be still above 8% and overall capital over 14%.

The Indian bank has also found opportunities in the loan market this year, tapping it three times since last October to raise $720m. Lenders will not go beyond three years in maturity now for Indian banks, says Rego, diminishing the product’s appeal somewhat. The bank does not intend to tap the loan market again this year.
01 Oct 2012