ICICI tap achieves tightest spread among Indian banks

SINGAPORE, Dec 9 (Reuters): ICICI raised US$200m in an opportunistic tap of its US$500 million 3.5 per cent March 2020s at 165bp over Treasuries, the tightest spread for an Indian bank deal since 2007, according to a banker on the deal.
The issue broke the record of Axis Bank, which sold $500m of 3.25 per cent 2020 bonds last month priced at 170bp over Treasuries.
While investors have turned a tad cautious over the Indian high-yield sector due to complicated structures and more restrictive RBI guidelines for foreign borrowings, appetite for quality investment-grade names out of the country remains robust, investors say.
With a further boost from the strong November non-farm payroll growth in the US, the largest private-sector lender decided to do the opportunistic tap, which raised the total outstanding on the existing issue to $700m.
The tap offered a negligible new-issue premium as its existing 2020s were indicated at 163bp over Treasuries prior to the reopening. The tap came with a lower all-in yield of 3.356 per cent, versus a yield 3.57 per cent on the existing notes.
The leads also referenced private-sector peer Axis Bank's 2020s, quoted at G-spread of 169bp. Yet,the ICICI tap priced through that on the back of strong demand from investors outside Asia.
Axis Bank's stressed asset ratio as of September 30 stood at 4.0 per cent, compared with 6% for ICICI.
The distribution of the Reg S tap, with ICICI's Dubai branch as the issuer, defied the typical 70/30 split between investors from Asia and elsewhere for Asian deals. Middle East investors showed enormous appetite for ICICI, buying 39% of the notes. European investors also bought an impressive 32%, while Asia took the remainder.
"The distribution speaks volumes about how well-known ICICI is among global investors," said a banker on the deal. "That's why the tap went for a Reg S-only format versus the 144A/Reg S format for the initial issue."
Meanwhile, India's private-sector banks were likely to lead the improvement on asset quality in the near future, said Nomura.
Against a narrowing fiscal deficit, declining inflation and rising GDP growth in India, "we expect the asset quality cycle to bottom out over the next two to three quarters, led by private sector banks and large public sector banks," analysts at Nomura wrote in a research note on December 5.
The analysts, however, expects the recovery to be gradual during 2015-2016 with Indian banking system's non-performing loans ratio and total stressed assets ratio to remain largely unchanged at around mid-4 per cent and 10 per cent-11 per cent, respectively.
The ICICI reopening was indicated a tad wider at bid-167 over Treasuries.
HSBC and JP Morgan ran the deal, which is expected to be rated Baa2 by Moody's and BBB- by S&P.