The bulk of the demand for bonds issued by Indian banks seems to be coming from Asian countries. Over the past fortnight, the country?s biggest lenders, State Bank of India and ICICI Bank, raised funds totalling $2 billion through medium-term notes. ?All the recent transactions saw major investments from Asia followed by US-based investors. Close to half the investment in the last few issuances have now comes from within Asia,? said the syndication head of a leading foreign bank.
While Asian investors lapped up more than 75% of Union Bank?s bonds, SBI placed over 45% of its bond issuance with Asian investors, while ICICI Bank placed 46%. Moreover, the issues received a good response; more than 300 investors subscribed to ICICI Bank?s issue, which carried a coupon rate of 4.70%, taking the total value of subscription to $5.7 billion, an oversubscription of 7.6 times.
SBI?s issue, priced at 375 basis points above US treasuries, was oversubscribed by 5.4 times. Union Bank of India and Indian Overseas Bank, the other issuers, have also witnessed large oversubscriptions. Union Bank, which raised $350 million, saw its issue being oversubscribed by 5.7 times.
Encouraged by the success of these issues, most other banks are now taking another look at their medium-term note programmes.
Some banks that could tap the overseas market in the near term are Bank of India and IDBI Bank. “We will not raise dollar-denominated bonds but we are looking closely at other markets (to raise overseas bonds),” Melweyn Rego, executive director at IDBI Bank, said.
The share of investors from Asia in these bond issues have increased, which otherwise used to be dominated by European investors.
Investment bankers said that following the strong response, bonds denominated in other currencies could also be issued.”We could also see Asian currency denominated bonds being raised going forward,? said Shankar Subramaniam, director of financial institutions at Bank of America-Merrill Lynch.
Following the debt crisis, most European banks are starved of capital and funds and, therefore, are largely staying away from emerging market bonds. Investment bankers said that top-quality Indian issuers should easily find investors following the success of the these issuances.
In July, when SBI went abroad to raise $1.25 billion, concerns over India?s sovereign rating had made some bankers wary of investors? response. But the strong response by investors for dollar-denominated bonds of SBI, Union Bank of India and ICICI Bank has made them believe that the possibility of “junk” status for India has been priced in by the market and there is a strong appetite for bond issued by Indian banks.
In April, Standard & Poor?s cut India?s sovereign outlook to negative, followed by Fitch Ratings. Both have given India the lowest investment-grade rating of BBB-.
