Tata Steel and Hyundai Capital price deals

In India, Tata Steel has succeeded in raising the rupee equivalent of $480 million in what is the largest single-issue bond offering from a private corporate borrower in the domestic market. The bond was upsized from an initial $300 million. Citi was the sole arranger for the deal, which included a three-year ($331 million) tranche that came at 10.2%, and a seven-year ($149 million) tranche which priced on a floating-rate basis at 250bp over Mibor.

The senior unsecured transaction rated double-A, which marked Tata Steel’s debut in the domestic bond market, came just after the policy announcement of a 75bp increase in the cash reserve ratio.

“We focused primarily on allocating the bonds to mutual funds and insurance companies. This was good for diversification purposes,” says a source close to the deal. Seventy percent of the bonds sold to funds, while 30% sold to insurance companies.

In terms of comparables, Tata Power (rated triple-A) priced a 10-year secure $120 million-equivalent offering a couple of days ago at 10.3%.

The funds will help the company refinance its existing rupee obligations.

The pipeline of corporate issuers willing to access the local bond market has increased. The trend has been fuelled by the volatility in the international markets which has made it hostile, and the fact that Indian companies are restricted from issuing offshore due to the cap on external commercial borrowings.

Hyundai Capital finally succeeded in pricing its ringgit deal yesterday, bringing to market a three-year M$650 million ($200 million) bond with a coupon of 5.5% via Deutsche Bank.

The bonds were allocated to 18 accounts, and the deal was 1.5 times oversubscribed. Sixty-one percent of the bonds sold to asset managers, 19% to insurance companies and 20% to banks.

The deal had been postponed in April, due to a widening in the basis swap for both the Malaysian ringgit, and the Korean won. These have returned to favourable levels and sources close to the deal report that Hyundai Capital has achieved attractive funding levels versus what it could have achieved in the dollar market. “In terms of dollars, funding levels amount to a dollar equivalent of between 250bp and 275bp over Libor,” says a source close to the deal.

In terms of comparables, Hyundai Capital’s 2010 bonds were at 275bp over mid-swaps, while the 2012s were trading at 340bp over mid-swaps. According to sources close to the deal, this equates roughly to 300bp-305bp over mid-swaps for a three-year maturity. Meanwhile, Hyundai’s own bonds in the Korean domestic markets were trading at the equivalent of 315bp over dollar Libor.

“There’s a little less pressure on the Malaysian ringgit pipeline and the basis has moved back to much more realistic levels, so Hyundai took advantage of that,” says the source. “The dollar markets are coming back, but companies will continue to look at Malaysia, not just for the cost advantages, but also simply for investor diversification purposes.”