Union Bank of India, acting through its Hong Kong branch, on January 14 priced its debut Swiss franc-denominated bond. The SFr160 million ($165 million) deal was the first Swiss franc bond to be issued by an Indian borrower in 23 years and only the third such bond out of India period. Barclays Capital was the sole bookrunner.
Its successful completion is expected to pave the way for other Indian borrowers to follow suit.
“Previously, issuers were sceptical about funding in Swiss francs and were taking a wait-and-see approach. But we are getting interest from other borrowers. The deal offers diversification and cost arbitrage," said a banker. "Indian issuers tend to issue in packs, which puts a lot of pressure on their dollar bonds. Hopefully, issuing in other currencies such as the Swiss franc will take some pressure off their dollar funding,” he added.
The deal opened up a new investor base to Union Bank of India, which included Swiss private banks, pension funds and insurance companies. It also offered cost savings of about 25bp to 30bp versus the bank's US dollar funding.
The SFr160 million bond, which matures on August 7, 2015, priced at 200bp over Swiss franc mid-swaps. This translates into low- to mid-230bp over US dollar mid-swaps, including the cost of swapping the Swiss francs to US dollars, which the bank plans to do.
In contrast, Union Bank of India’s US dollar bonds due February 2016 were trading at a spread of 275bp over five-year US Treasuries, which is roughly equivalent to US dollar mid-swaps plus 250bp. As Union Bank of India would have had to pay a new issue premium of 10bp to 15bp, its cost of funding in dollars was said to be US dollar mid-swaps plus 265bp to 270bp.
The 4.5-year bond was upsized from SFr125 million to SFr160 million due to strong demand. It pays a coupon of 3.375% and was reoffered at 100.006 to yield 3.37%.
Union Bank of India is a rare BBB credit to be offered in the Swiss franc bond market, which is heavily dominated by single-A or higher credits that account for about 90% of the total bond issuance.
“Swiss investors are keen to diversify out of single-A rated issuers and take exposure to emerging market names,” the banker added.
However, only some borrowers can issue in the Swiss franc market and those that can may not be able to achieve US dollar benchmark size deals.
Union Bank of India, which is rated Baa2/BBB- (Moody’s/S&P) was able to gain acceptance among Swiss investors partly thanks to its 55.43% ownership by the government of India, which helped shape their perception of the credit.
About 88% of the demand came from Switzerland, while the rest came from Asia and other parts of Europe. There were 55 investors in the book. By investor type, private banks took more than 30%, fund managers more than 20% and banks more than 40%. Pension funds/insurers/others took up the rest.
The bank conducted extensive roadshows with over 100 investors in Switzerland in November last year but decided to hold off on the launch of the deal as credit spreads were volatile due to concerns about European sovereign debt.
Asian issuance in the Swiss franc market has been sparse. IDBI Bank issued the latest Swiss franc deal by an Indian issuer back in the 1980s and ICICI Bank did a small trade before that.
More recently, Korean issuers such as Korea Development Bank, Export-Import Bank of Korea (Kexim) and Hyundai Capital have issued in Swiss francs. However, the simmering North and South Korean geopolitical tension that emerged late last year has put pressure on further issuance.
Union Bank of India's Reg-S bond was issued off the bank's $2 billion medium-term note programme and will settle on February 7, 2011. The borrower is the fifth largest nationalised bank in India and has a customer base of over 26.5 million.
