Vedanta closes region's biggest high-yield bond

Anil Agarwal-controlled Vedanta Resources closed a $1.7 billion jumbo bond early Thursday morning — the biggest high-yield bond from Asia ex-Japan. It was also the largest dollar bond from an Indian company.

Vedanta is London-listed but its operations are mostly located in India. It also has assets around the world, including Zambia, Australia, South Africa and Namibia. The company had acquired a 58.5% stake in Cairn India for $8.7 billion in 2011, as it sought to diversify from its metals business and into oil.

The proceeds from the bond will be used to take out a $1.35 billion 12-month bridge that matures next month. The bridge was taken for the Cairn India acquisition and its latest bond is part of a broader $2.5 billion dual-tranche refinancing that also includes a $1.2 billion five-year term loan. The company had previously reviewed a second loan piece but in the end, decided to issue the high-yield bond instead.

“The deal removed some of the overhang in the market and, when the bond was first announced, we saw Vedanta’s outstanding bonds tighten,” says one source.

Vedanta’s return to the public bond markets came after an absence of two years. It met with investors in London, Singapore, Hong Kong, Boston, Los Angeles, and New York on May 17 to 21.

In the end, it was US investors that heavily drove the deal, thanks in part to the leads’ strategy to release initial price thoughts on Tuesday, on the last day of investor meetings in New York. This gave US investors more time to look at the deal and helped generate support for the transaction before moving into the Asia market open on Wednesday.

The leads had also established a substantial soft order book throughout the roadshow. Leveraging on the orders built in the US, the leads released official price guidance at the 6.25% area and 7.375% area for the long five-year and 10-year bonds, respectively, after the Asian lunch break on Wednesday. At that point, there were more than $5 billion of orders.

The books continued to grow at a steady pace throughout the day, attracting a combined order book of more than $10 billion. The final guidance was revised to 6% to 6.125% for the five-year tranche and 7.125% to 7.375% for the 10-year tranche, with both bonds pricing at the tight end.

The $1.2 billion long five-year piece attracted $7.2 billion of demand from 423 investors while the $500 million 10-year piece attracted $3.3 billion of orders from 275 investors.

Vedanta’s outstanding 2018s were trading at 5.9% and its new January 2019s priced at 6%, so there was no new issue premium. Meanwhile, its outstanding 2021s were trading at 6.7% to 6.8% and the new May 2023s priced to yield 7.125%, which was flat to inside its curve.

US investors took a big chunk of the deal, unusual for an Indian company and, according to sources, the deal drew strong participation from high-quality long-only investors. The bonds held steady around par for both tranches in secondary markets on Thursday afternoon.

For the five-year tranche, US investors were allocated 56%, Asian investors were allocated 23% and European investors 21%. By investor type, funds took 73%, banks 2%, private banks 13%, insurance 4% and other investors 8%. For the 10-year tranche, US investors were allocated 50%, Asian investors 24% and European investors 26%. By investor type, funds took 76%, banks 1%, private banks 11%, insurers 3% and other investors 9%. Vedanta’s bonds mature on January 31, 2019 and May 31, 2023.

"This transaction demonstrates the financial strength and global recognition of Vedanta Group as a major natural resources corporate. It is our fourth bond transaction and each time we have been met with increasingly overwhelming response by investors," said Anil Agarwal, chairman of Vedanta in a release.

More high-yield bond issues could be seen out of India. Rolta issued the year’s first in 2013 this month and this was followed by Vedanta’s jumbo issue. “We are in discussions with seven to 10 high-yield Indian issuers that could tap the market,” says one source.

Barclays, Bank of America Merrill Lynch, Citi, J.P. Morgan, Royal Bank of Scotland and Standard Chartered are joint global coordinators and active bookrunners. Deutsche Bank was a passive bookrunner.

The largest previous high-yield bond out of Asia was a $1.65 billion bond issued by Vedanta in May 2011. Barclays, Citi, RBS and Standard Chartered were retained from the last deal. Credit Suisse, Goldman Sachs and Morgan Stanley were bookrunners on the previous deal but were absent on the latest.