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Reliance Industries, the flagship company of the Reliance Group, blazed a trail for Indian borrowers with a $1 billion 10-year bond that priced early Friday morning.
Reliance is the first Indian company to issue a dollar bond since August 2011, and its success opens the door for other Indian companies to consider tapping international markets.
There was plenty of noise about Reliance planning a dollar benchmark last year, but markets did not cooperate. This time, the company took advantage of positive market momentum to issue only its second dollar bond and succeeded in pricing inside its secondary curve.
Barclays Capital, Bank of America Merrill Lynch, Citi, HSBC and UBS were joint bookrunners.
“There was a window for Reliance to tap the markets with the better-than-expected US non-farm payrolls and employment numbers. They took advantage of this and geared up to access the markets at short notice,” said Amit Sheopuri, co-head of Asia debt origination at Citi. “Reliance managed to price inside its secondary curve and its bonds have also traded firmer in the secondary market, which is an achievement for the company amid volatile markets.”
The last time the company tapped the market was back in October 2010 when the bank printed its inaugural $1.5 billion 10 and 30-year bond. It was also the last time it held roadshows with investors.
The deal was announced on Thursday morning, with an initial guidance in the area of Treasuries plus 365bp. This was tightened to a final guidance of Treasuries plus 345bp/355bp, with the bonds pricing at the tight end. The bonds were quoted at 335bp in secondary markets on Friday afternoon, about 10bp inside the issue spread.
So far this year, much of the Asian corporate dollar bonds have come from Hong Kong companies with hardly any issuance from Southeast Asia or India.
“We have not seen a lot of corporate issuance out of India given the withholding tax regime,” said Sheopuri. “However, Reliance will be using its proceeds for its US subsidiary — Reliance Holding USA. In the coming months, we could see more issuance from Indian banks which are issuing through offshore branches and selectively from Indian companies that plan to use the funds offshore.”
The deal gathered a total order book of $7.8 billion from almost 400 accounts, with strong participation from US investors and fund managers. Reliance has a strong following in the US, where oil and gas assets are well-understood. US investors were allocated 52%, Asian investors 31% and European investors 17%. Fund managers were allocated 65%, insurers 15%, banks 10%, private banks 5% and government agencies 5%.
“We are delighted to see the strong interest shown by high quality global investors in Reliance Industries’ credit,” said V Srikanth, joint chief financial officer of Reliance Industries, in a press release. “The transaction was well executed despite the short time window and a volatile global environment.”
Reliance’s new issue priced inside its outstanding curve, although it is worth pointing out that its outstanding benchmark bonds are quite illiquid. The Reliance Industries 2020s were trading at around Treasuries plus 329bp when the deal was announced, which put fair value at around Treasuries plus 352bp, based on the US Treasury yield curve. Reliance Industries’ new bonds came at Treasuries plus 345bp, or 7bp inside fair value.
Reliance Industries is rated Baa2 by Moody’s and BBB by S&P. The coupon was fixed at 5.4% and the notes were reoffered at 99.481 to yield 5.468%. The bonds mature February 14, 2022.
Shui On Land and China Overseas Land
The bond rush in the real estate sector continued last week with the market opening up for China property names. Vincent Lo’s Shui On Land last week priced its $400 million three-year debut dollar bond while China Overseas Land printed a $500 million five-year bond.
Shui On Land is unrated, but as its 9.75% pricing suggests, it is a high-yield borrower and, notably, the first such borrower to come to market in six months. The leads — BNP Paribas, Deutsche Bank, Standard Chartered and UBS — released initial guidance for the deal on Wednesday at the 9.75% area and kept the books open throughout the night before pricing the deal on Thursday evening.
“Yes, we did keep the books open for longer than usual, but we had a lot of private banking orders and institutional accounts that needed more time to do credit work,” said one person familiar with the deal.
The fact that the guidance did not tighten much during the bookbuild suggests that there was some resistance from investors, but the person familiar with the deal said that the company was targeting a pricing under 10% and was happy with the outcome. He added that while the company would have preferred a longer tenor, investors were only willing to hold a three-year bond.
Shui On Land gathered an order book of more than $650 million and the deal attracted strong participation from private banks, which accounted for 70% of the allocations, thanks to their familiarity with the Shui On Land brand name, as well as a generous private bank rebate of 0.75%.
“The rebate helped generate momentum from private banking accounts and many of these are buy-and-hold accounts,” said the person familiar with the deal. “When institutional investors saw the book was covered, they decided to come in.”
Wealthy clients in Hong Kong are very familiar with the big property firms and tend to hold their investments to maturity, which is why borrowers (or the banks, depending on the arrangement) often offer rebates to incentivise private bankers to sell these bonds to their clients. Another property name, Kerry Properties, which printed a $500 million five-year bond last week, offered a 0.25% private banking rebate.
Shui On Land’s bonds traded at 99.75/100 on Friday. The coupon was fixed at 9.75% and the notes reoffered at par. The bonds mature February 16, 2015.
Meanwhile, China Overseas Land late Thursday night also printed a well-received $500 million five-year bond, attracting an order book of $6.5 billion from 320 accounts. The company released initial guidance at Treasuries plus 437.5bp and the bonds priced at Treasuries plus 410bp. The bonds tightened about 10bp in secondary on Friday.
China Overseas Land is rated Baa2 by Moody’s and BBB by Standard & Poor’s. The coupon was fixed at 4.875% and the notes reoffered at 99.816 to yield 4.917%.
Deutsche Bank, J.P. Morgan, ICBC International and HSBC were joint bookrunners.
