How much do you need to raise this year?
We will seek to continue to capitalise on the growth opportunities presented by the foreign currency financing needs of Indian corporations. Our requirements would depend upon an evaluation of these opportunities, the return thereof and the market conditions.
How are you going to achieve these targets?
The bond market has been a very important source of borrowing for us in recent years, but over the last few months, it has not reflected the true credit spread that should be linked to our paper. So we are doing other things, such as bilateral loans with banks and corporate deposits. Also, our subsidiaries in Canada and the UK, for example, have access to retail deposits. So we are accessing those markets to finance our requirements. These alternative methods of financing are at lower cost than what we could achieve in the bond markets.
Do you have a strategy regarding your approach to the bond market should the markets pick up? Last year, you were criticised for flooding the market with Indian paper.
It is difficult to forecast a strategy in todayÆs environment because market conditions are so volatile and sentiment changes so fast, but we donÆt want to cause investor fatigue, and we do not want to hit the markets repeatedly. The fact that we havenÆt done an issue for more than six months should mean that investors will see us positively when we do decide to approach the market again.
When you price bonds, who do you benchmark yourself against in terms of pricing?
ThatÆs a very tricky question because itÆs difficult to find a benchmark. However, we generally look at names in the triple-B category, as well as other single-A borrowers in Asia. (The latter are relevant since ICICI is constrained by the sovereign rating.) The problem is that we are relatively unique given our profile: the kind of bond deals that we did last year (large and frequent) and the fact that we are part of the India growth story. As you know, Indian banks have only started accessing the bond markets in the past couple of years, with hitherto little issuance of Indian paper.
As a result, we ourselves are the benchmark and we are competing with ourselves to do a better deal at a better rate.
ICICI Bank is known to be a savvy borrower. How much value do the investment banks bring to your borrowing activities and does this affect the fees you pay?
ItÆs shades of grey. There is an internal debate and we also seek external counsel but we donÆt take what the banks say as being the gospel truth. Moreover, in terms of the documentation (for example 144A), we are listed on the New York Stock Exchange and so our finance team is very experienced û to that extent our dependency on investment banks for the preparation of those documents is not that high. Also, we are the only issuer from India to issue 144A bonds, and therefore our turnaround is very fast.
Furthermore, we now make it a point to meet investors across the world every quarter when our results come out. In January, we went to the US, London, Singapore and Hong Kong to give them a briefing about our results. So we are trying to build a good relationship with them directly in order to sense the market better, rather than leave it to the investment banks to tell us whatÆs going on. It also means we can develop mutual trust and confidence with buyers of our paper.
You donÆt have a house bank. On what basis do you award your mandates?
It depends on our relationships, and the quality of the advice we are given pre-deal and on an ongoing basis, that is which bank interacts with us the most at any given time, as well as the degree to which a bank keeps us informed as a deal progresses, for example the tactical calls that need to be made throughout a deal, should things not be going to plan. We like to be kept informed of the process at every step of the way.
Also, key to a mandate is how present a bank is when markets arenÆt so good, who comes up with new and alternative ways for us to raise funds through new markets and structures, as well as senior management engagement. Moreover, their willingness to put their balance sheet to work is also taken into account.
You obviously feel that there are a number of banks who meet your criteria.
Well, the problem is itÆs very difficult to evaluate who is doing a good job and who is not. As an issuer, you donÆt know which investment bank is actually getting the investors on board, or whose sales team is really pushing the investors. There is a lot of ambiguity because so many people are involved in the process: the debt capital markets teams, the syndicate desks and the sales teams.
As a result, the judgments we make on which banks do a good job and which ones donÆt is a little subjective and it depends on all the factors which I mentioned above. Also, we like to experiment with new banks in order to get a feel regarding how they perform.
To what degree do you think that banks downsizing their bond syndicate desks will affect the degree of client service you will receive?
The volume of issuance is probably going to decrease so banks probably donÆt need as many people on the desk. But the degree to which these banks are going to be able to give us the attention we want is something we would need to take into account when we make our decisions.
We will also keep in mind where we anticipate the major funds will come from. If we do a 144A deal, and the transaction is driven predominantly by real money accounts from the US, then IÆm not too fussed about how strong a bankÆs presence is in Asia. Typically, I will use three arrangers so one bank may not be so good in Asia, but is very strong in the US.
However, teams getting too lean in any organisation are clearly a cause for concern.
This interview was first published in the May issue of FinanceAsia magazine.
¬ Haymarket Media Limited. All rights reserved.
