Bank of India prices $500 million 5.5-year bond

Bank of India (BOI) priced a senior Reg-S $500 million deal early Thursday morning. The 5.5-year senior fixed-rate notes are rated Baa2/BBB- and will pay a 4.75% coupon. The re-offer price was set at 99.399 for a yield of 4.876%.

The bonds were issued under the bank's existing $2 billion medium-term note programme and will mature on September 30, 2015.

Initial guidance went out at US Treasuries plus 245bp. This was later revised to Treasuries plus 235bp to 240bp. In the end, the bonds were priced at the tight end of guidance at 235bp over the equivalent five-year US Treasury yield. The yield at the time of pricing was equivalent to a spread of 205bp over mid-swaps.

The five-year bonds issued by State Bank of India and Export-Import Bank of India were the key benchmarks for the new deal. At the time of pricing, Exim Bank was trading at 195bp over mid-swaps, while SBI was quoted at 185bp over. This meant that BOI came 10bp wider than Exim Bank and about 20bp wider than SBI.

At the opening of Asian trading yesterday, the BOI bonds had tightened considerably to 217bp over US Treasuries, but by late afternoon they had widened back out to 228bp over.

BOI announced the mandate for this deal on February 2, at a time when there was a high volume of new issuance in the market. BOI too was initially expected to price soon after its roadshow ended on February 8, but the bank was of the view that the market was far too volatile to successfully issue a bond at that time.

The European sovereign debt problems were a hot topic in early February, causing global markets to deteriorate dramatically. European emerging market sovereign spreads widened by about 30bp in the first week of the month and investment-grade Asian corporate spreads widened by 11bp overnight between February 4 and 5. All this volatility in the market, both in Asia and abroad resulted in Asian stocks falling to five-month lows. With that backdrop, it was clear to BOI that it was not a good time to price.