ICICI raises $2b through bond issues abroad
ICICI Bank, India’s second largest bank, is on a fund raising spree. After raising $1.5 billion a couple of months back through loan markets, it has now raised another $2 billion through a 5-year fixed rate note. This is the single-largest issuance by an Asian bank. With this, the private sector bank has raised $6 billion in this financial year against $6.5 billion in the last financial year.
The notes were sold under 144A/Reg S format. The bank was able to tap qualified US investors through this route. The money has been raised by the bank’s Bahrain branch. The notes have been priced at 237 basis points (bps) over US Libor or at Libor plus 172 bps. The six-month Libor is currently at 5.14%. From an investor breakdown perspective, 32% of the notes were sold to banks, 53% to fund managers and 15% to pension funds and retail. The issue had an order book of $6.05 billion and received interest from 250 investors. This is the first major issuance by an Asian bank, post-subprime crisis.
The offer was lead managed by Deutsche Bank, Goldman Sachs and Merrill Lynch. Incidentally, the bank had raised $1.5 billion through loan syndication programme a couple of months earlier. The issue has a one-, three-, and five-year tranche, and the five-year tranche was raised at Libor plus 65 bps. In January this year, the bank had raised $2 billion under the 144A/Reg S format. It had raised three-year, five-year and upper tier II. The bank had raised $750 million under the five year tranche for which it had paid Libor plus 75 basis points.
However, due to the subprime crisis, there has been a widening of credit spreads globally. The bank’s earlier January issuance is currently trading at Libor plus around 155 bps. ICICI Bank will use this money to fund the needs of its corporate borrowers. Indian corporates have been on a major overseas acquisition binge, and the move seems to be continuing even on the back of the subprime crisis. This is even as there has been a slowdown of credit in the local markets, though there has been some pick-up in the past couple of weeks. This would also mean that the cost of borrowing for Indian corporates would also go up dramatically.
Earlier speaking at a conference in Mumbai, ICICI Bank’s joint MD, Kalpana Morparia said, “Spreads have certainly widened due to credit issues in the US. However, the impact on papers issued by players in emerging markets has been quite moderate. Also, bond offerings by Indian entities in offshore markets have also been modest. However, given the fact that there is a huge interest differential between rupee borrowings and dollar-denominated ones, raising funds from the offshore market still is an attractive proposition. “
Speaking on the sidelines, Ms Morparia said that the bank would take a call on revising its interest rates in its board meeting in October.
Securitisation could be a route to provide a more effective funding route to banks and finance companies, given the growing need for funds in anticipation of future growth in credit.