Strong foreign appetite helps Tata Motors raise $750 m

Written by fe Bureau | Mumbai | Updated: Oct 28 2014, 07:07am hrs
Thanks to the strong appetite for Indian paper, Tata Motors, a first sub-investment grade company, has managed to get funding for ten years at 5.75% in the overseas market. The Indian auto major said last week it had raised $250 million at a price of 5.75%.

The company's bonds are rated bb by Standard & Poor's, notches lower than the sovereign rating of bbb- for India. Earlier in May, Tata Motors through its overseas subsidiary raised $300 million through 7-year bonds at 5.75%.

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This deal has opened up the market for high-yield deals for India again. The 5.5 year tranche saw a lot of demand was oversubscribed 8.4 times. The 10 year tranche was priced at 5.75% which is the lowest yield from a BB rated company, said an investment banker.

Tata Motors raised a total of $750 million, of which $500 million was raised through the 5.5 tranche at a coupon rate of 4.625%. with this, the tally of total overseas fund raising by Indian companies goes up to $16.8 billion, higher than the $14.4 billion raised in 2013. An investment banker associated with the deal said that this could spur more issuances by other such lower-rated Indian companies.

A sharp fall in borrowing costs in overseas markets along with a fall in credit default spreads (CDS) of Indian corporate bonds has prompted many companies to tap the dollar bond market this year.

For instance, Tata Motors CDS, the cost of buying protection against the credit risk of the company, is at a two-week low of 305 basis points currently. The CDS of most Indian companies, including quasi-sovereign EXIM Bank bonds, has fallen by as much as 150 bps since January.

Public sector lender IDBI Bank last week raised $350 million through 5.5-year bonds at a coupon rate of 4.13%. ONGC was the largest issuer foreign bonds in 2014.

ONGC Videsh raised $2.23 billion through its issue of dual-currency foreign bonds, and raised money through three equal tranches of 5-year US dollar bond, 10-year US dollar bond and 7-year euro bond. The 5-year US dollar bond was priced at 160 basis points (bps) over benchmark US treasury, while the 10-year US dollar bond was priced at 207.5 bps above the benchmark. Bankers expect bond issuances to the tune of $18 billion by the end of the year.