Bharti Airtel raised a $2 billion dual-tranche multi-currency offering on Monday, buoyed by improved market sentiment as concerns about the national elections dwindle.
The bond – which is the first multi-tranche dollar-euro note from an Indian corporate – consists of a $1 billion 10-year note and a €750 million ($1 billion) seven-year offering, according to a term sheet seen by FinanceAsia.
India’s domestic equity and credit market conditions, which improved towards the end of last week, helped provide an ideal window for the transaction to be marketed, a source close to the transaction says.
“We saw a very strong rally towards the end of last week when market sentiment improved on the back of exit poll results, which put us in a good position to launch the transaction on Monday morning,” said a source on the deal.
The South Asian nation’s exit polls suggest the country’s parliamentary election will deliver a strong mandate for the Bharatiya Janata Party’s Narendra Modi, a Hindu nationalist who has promised to create manufacturing jobs and overhaul the country’s infrastructure.
India's main stock index, the Sensex, rose more than 1% to 23,799.15 points in early trade on Tuesday. This follows a 2.4% gain on Monday ahead of the exit poll results.
In addition, the growing base of US and European investors helped provide strong support for Bharti’s transaction, which was both Reg-S and 144A-registered, unlike Tata’s notes that came end-April, when it issued a $300 million Reg S-only unrated bond, adds the source.
“The issue or dilemma is that there hasn’t been much issuance from Indian investment grade corporates this year,” said the source. “The US and Europe investors are looking for ways to participate in India’s upside story and get exposure to some of the blue chip issuers.”
According to Dealogic data, Indian investment grade corporates have sold $6.7 billion worth of bonds or 18 deals year-to-date, which is 42% less than last year’s $9.5 billion with 39 transactions during the same period.
Whopping order book
Bharti’s dollar bond attracted an order book of more than $9 billion from more than 500 accounts, says a source close to the transaction. About 50% of the notes went to US investors, followed by 30% to Europe and the rest to Asia. Fund managers subscribed to 75% of the paper, insurers 11%, financial institutions 6%, private banks 3% and others 5%, the source adds.
The euro tranche received an order book of more than $4 billion from more than 400 accounts. About 44% of the notes went to UK investors, followed by Germany and Austria with 21%, France 10%, Benelux 7%, Switzerland 5%, Asia 4% and other 9%. Fund managers bought 76% of the paper, followed by insurers and private funds with 13%, financial institutions and private banks with 10%, and others 1%.
“One of the good things about this sector from a bondholder’s standpoint is that when we look at the telecom or utilities industry, there’s a great deal of visibility on these businesses,” said the source. “These sectors – both from a scarcity and business standpoint – tend to be attractive.”
As a result, the 10-year dollar bond was able to tighten its pricing by 30bp from an initial price guidance of Treasuries plus 300bp. Also, it priced flat to its existing paper expiring 2023 that was trading at a G-spread of 270bp prior to announcement, highlights the source. The coupon is 5.35%.
As for the euro tranche, it was also able to tighten pricing by 20bp from an initial price offering of mid-swaps plus 245bp area, according to the term sheet. The offering’s coupon is 3.375%.
“We hope that we will continue to see more investment grade issuers from Asia-Pacific considering Europe for potential euro issuance given that the comparative funding levels between US dollar and euro are more in line than they had been in the past,” said a source on the deal.
In secondary markets, the US dollar bond has tightened by 15bp to trade at Treasuries plus 255bp.
Credit Positive
The net proceeds from the offering will be used for repayment and refinancing of existing foreign currency indebtedness, according to the term sheet.
“This issuance will extend Bharti's debt maturity profile, which is credit positive,” said Laura Acres, Moody's lead analyst for Bharti.
Bharti’s Baa3 rating is underpinned by continued strong performance from its mobile business in India, where it continues to report solid growth in revenues and ebitda (earnings before interest, tax, depreciation and amortisation). For the fiscal year ended March 31, 2014, mobile services in India reported a solid year-on-year growth of 8% in revenue and 22% in ebitda, according to Moody’s in a report on May 12.
Although reported debt increased to about Rs758 million ($12.65 million) from Rs667 million year-on-year, Bharti has taken steps to address its foreign currency exposure. In the financial year 2014, the company reduced its US dollar exposure with bond issuances of €1 billion and CHF350 million ($394 million).
“Although Bharti's dollar debt remains significant, we expect the company to continue managing down its exposure through bond issuances in other currencies,” Acres added.
Bank of America Merrill Lynch, Barclays, BNP Paribas, HSBC, JPMorgan and Standard Chartered were the joint lead managers and bookrunners of Bharti’s offering.
