Bharti Airtel returned to the international bond markets for the third time in as many years on Wednesday with a benchmark $1 billion 144a transaction.
The Indian telecoms group has a strong reputation among fixed income investors who view its deals as welcome diversification from the country's traditional supply of finance, oil and petrochemical related credits.
Initial guidance for the Baa3/BBB-/BBB- rated deal came out around the 220bp mark during the Asian trading day. This was then narrowed down to a range of 215bp to 210bp after the group built an order book of $1.5 billion.
By the time the book closed during the US trading day, a further $500 million had been added, bringing the total order book to $2 billion.
Final pricing came at 99.304% on a coupon of 4.375% and yield of 4.462%. This equated to a spread of 210bp over Treasuries.
A total of 160 investors participated in the deal with a split of 66% US, 18% Europe and 16% Asia. By investor type fund managers took 62%, insurers and pension funds 18%, banks 13%, private banks 3% and others 4%.
Pricing was fairly straightforward given the existence of two outstanding deals. Bharti's most recent offering comprises its 5.35% 2024 issue.
On Wednesday, this was bid at a Z spread of 195bp. The group's 5.125% 2023 deal was bid at 192p.
Thanks to strong secondary market momentum, both issues tightened about 5bp on the day before. A sell-off in the US Treasury market prompted the return of yield buyers to Asian credit and a rush to the primary markets after a few days lull.
Towards the end of the US close on Wednesday, 10-year Treasuries hit a seven-month high of 2.38% compared to 2.21% the beginning of the week before. The sell off gained new momentum on the back of a positive US private sector jobs report.
Bankers said that on a G spread basis, Bharti's 2024 deal was trading at 208bp on Wednesday. This means its new deal has offered a slim 2bp pick up.
When it was priced last May the 2024 deal attracted a $5 billion order book and came at 295bp over Treasuries.
Credit profile
Proceeds from the new transaction are being used to fund capex. In a ratings release, Standard & Poor's said it believes the company may also apply the funds towards de-leveraging.
So far, the group has given capex guidance of $2.6 billion to $2.8 billion for 2015, up 17% to 18% from last year. Analysts report that net debt to equity is, therefore, likely to increase from 18.4% in 2014 to 21.9% by the end of 2015.
In its recent quarterly results, the group reported that its tenancy ratio had risen from 2.08 times to 2.11 times. The group is one of the largest tower infrastructure providers in India with 85,829 towers at the end of the most recent quarter and 182,204 tenancies.
Analysts believe it is likely to continue generating double digit Ebitda from its wireless operations given that mobile data is still in its infancy in India. Over the course of the 2015 financial year, data volumes rose 91% year-on-year, while revenues were up 72%.
Data now represents 17.7% of overall revenues compared to 11.5% one year ago.
Syndicate
The lead management group for the new bond deal comprised Bank of America Merrill Lynch, Barclays, BNP Paribas, Deutsche Bank, HSBC and Standard Chartered. DBS was co-manager.
