Vedanta Resources, the mining and energy group founded by billionaire Anil Agarwal, became the first Indian issuer to sell a high-yield dollar bond this year, raising $1 billion from a five-and-a-half year bond early on Wednesday morning.
London-listed Vedanta, rated B1/B+ by Moody's and S&P, operates mostly in India and has assets around the world, including Zambia, Namibia, South Africa, Ireland, Liberia and Australia. It is seeking to repay some outstanding debt and reduce interest costs at a time when it hopes to reduce expenses by merging two major Indian units.
Wednesday's 144A/Reg S sale represented its first foray into the international bond markets for more than three years, since it sold a $3.4 billion dual-tranche offering in May 2013. The group staged a three-day roadshow, meeting investors in London, New York, Los Angeles, Hong Kong and Singapore from January 18 to 20.
"The new deal had received very strong momentum from European and Asian investors, generating more than $2.2 billion of orders before the US kicked in," said a syndicate banker running the deal. "The peak order book reached more than $3 billion before we went out with final guidance."
The leads – Barclays, Citi, JP Morgan and Standard Chartered – went out with initial price guidance in the 6.75% area on Tuesday morning. Final guidance was revised to 12.5bp each side of 6.5% before midnight.
Final pricing of the July 2022 bond was settled at par to yield 6.375%, the tight end of the marketing range. The final order book finished at $2.3 billion from 200 investors. In the end, US accounts took 40% of the new print, followed at 38% by Europe, Middle East and Africa, and 22% by Asia.
"US investors traditionally place a large ticket size and are major buyers of Indian high-yield bonds," the syndicate banker said. "The deal drew strong participation from a mix of long-only funds and institutional money."
The closest comparables were Vedanta's two existing bonds. Its $1.65 billion 8.25% June 2021 bond and its $1.7 billion 7.125% May 2023 bond were yielding 6.07% and 6.78% respectively prior to the pricing on Monday.
In theory, fair value for the new deal should be at 6.5% area over a one-year curve extension, according to a syndicate banker. That meant the new deal was priced inside the secondary curve.
"Some investors think the commodity cycle is turning in a positive way," one Singapore-based investor said. On Wednesday morning, the bond was quoted on a cash price of 100.35 to yield 6.30%.
According to the final distribution figures, 92% of the deal went to fund managers, with only 5% allocated to private banks. The remaining 3% was placed to banks/others.
The company plans to use approximately $850 million of the proceeds to fund tender offers for its 2018 and 2019 bonds. The remaining $150 million will be used to refinance its bank loans and debt.
The bond was issued ahead of a merger between Vedanta's core operating units in India, Vedanta Limited and Cairn India. The merger is due for completion in March, securing better access for Vedanta to Cairn India's $3.5 billion cash pile. The group acquired a 58.5% stake in Cairn India for $8.7 billion in 2011, as it sought to diversify beyond metal mining and into oil and gas.
After the tender offer closed, Vedanta accepted $371 million in tenders for its $750 million 2018 9.5% bond and another $425 million in tenders for its $1.2 billion 6% 2019 bond.
