Energy-to-telecoms conglomerate, Reliance Industries, became the first Indian issuer to take advantage of Moody’s sovereign upgrade on Monday, tapping the international bond markets for $800 million.
The deal came two business days after the rating agency upgraded India from Baa3 to Baa2, enabling Reliance to successfully ride positive sentiment, which was pushing the whole Indian credit curve tighter.
The group has a Baa2/BBB+ rating (two notches higher than the sovereign from S&P) and was able to use its benchmark status to leverage pricing to historically tight levels. As a result, the deal’s 130bp launch spread over Treasuries now ranks as the tightest ever by an Indian credit at the 10-year point of the curve.
Bankers and analysts both concluded that this level leaves very little juice for further spread performance. Consequently, there was a reasonable rather than outsized order book, which topped $2 billion at its peak and closed around the $1.3 billion level with 90 accounts.
One noticeable aspect of the Reg S/144a deal was its tilt away from US investors.
When Reliance last came to market in 2015, it placed 45% of a $750 million 30-year Reg S/144a deal with US investors. This time round, 25% went to the US, 62% to Asia and 13% to Europe.
By investor type, asset managers took 57%, insurers and pension funds 26%, banks 11% and public sector entities 6%.
“The company rightly timed the market after the sovereign upgrade,” concluded one syndicate banker.
In its announcement last Friday, Moody’s said its upgrade recognizes the progress the country has made instituting structural reforms, including the introduction of a goods and services tax and the removal of high-denomination Rs500 and Rs1,000 notes, which effectively took out 87% of all Indian currency in circulation.
India’s domestic media noted the upgrade has been a long time in coming, since Moody’s last upgraded the country in 2004. However, India has, nevertheless, made considerable progress clawing its way back up the rating scale over the past two decades from the Ba2/BB+ level it carried in the mid 1990s.
At that point, it had a one notch higher rating than the Philippines from S&P and was rated two notches lower by both agencies relative to Indonesia. That position has now reversed.
Today, India has a one notch lower rating than the Philippines from S&P and a one notch higher rating than Indonesia from Moody’s.
Analysts believe Moody’s latest move reflects the government’s recent progress re-capitalizing the banking sector, given it has come at a time of slowing growth and elevated general government debt. In its ratings release, the agency noted that at 68% of GDP, this debt level is higher than the 44% median for triple-B rated credits.
Syndicate bankers said the move is already encouraging more flows into India and noted how positive the immediate impact has been. India’s dollar-denominated yield curve tightened 5bp to 12bp last Friday, outperforming the overall market, which was a couple of basis points tighter on the day.
Fair value
On Monday morning, Reliance Industries’ lead bankers – Bank of America Merrill Lynch, Citi and HSBC – initially marketed its new deal at 150bp over the 10-year US Treasuries, before narrowing the marketing range to 5bp each side of 135bp. Final pricing of a November 2027 bond was priced at par to yield 130bp over the US Treasuries, or 3.667%, according to a term sheet seen by FinanceAsia.
In terms of fair value, bankers said investors used Reliance Industries’ outstanding 4.125% January 2025 note as the main benchmark. This was trading on a G-spread of 122bp, or 112bp over Treasuries on Monday.
They estimated the new deal’s fair value at 133bp after taking the maturity extension into account.
The second main comparable is state-controlled Oil & National Gas Corp (ONGC), which has a July 2026 note outstanding. This was trading on a G-spread of 137bp, or 133bp over US Treasuries on Monday.
“Reliance’s pricing is clearly quite tight compared with its outstanding curve and ONGC,” one Singapore-based investor told FinanceAsia.
However, the deal performed during initial secondary market trading on Tuesday and was quoted around the reoffer, narrowing by as much as 2bp at one point, according to market data.
The company will use proceeds to repay an $800 million 5.875% perpetual bond, which becomes callable in January.
Alongside the three joint global co-ordinators, there were three active bookrunners comprising Barclays, JP Morgan and Standard Chartered, plus 10 joint bookrunners numbering ANZ, BNP Paribas, Credit Agricole, Deutsche Bank, DBS, Mizuho, Morgan Stanley, Scotiabank, SG, and SMBC Nikko.
