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Surging USD-Denominated Bond Issuances From Indian Companies

Indian banks and corporate together issued USD 6.3bn of USD-denominated bonds during the three months ended 31-Mar-2013. This is an increase of three times from the previous quarter. The strong issuance is a result of overseas borrowing costs near all-time low level in India. Average yield on USD-denominated bonds issued by Indian issuers declined by 46bps during the first three months of 2013 to 3.81%. Similar yield for Asian issuers was at 3.58% during the same period. Investor sentiments across the globe, especially in the US, are improving gradually and Indian issuers are capitalizing on this opportunity.

Mar-2013, in particular, saw heavy supply in the Indian USD-denominated bond issuance market. India's leading telecom service provider, Bharti Airtel Ltd (NR/BB+/BBB-), issued USD 1.5bn 10-year bonds, priced at 5.125% vs. initial guidance of 5.5%. The issue received strong global investor response with book building of USD 9.5bn from 421 accounts. Majority of the demand (~67%) came from global fund managers. The other successful issuance came from HDFC Bank (Baa2/BBB-/NR), India's second largest private sector bank. HDFC bank issued USD 500mn 5-year bonds with a coupon of 3%. The issuance saw 10 times demand or USD 5bn of book building. The coupon achieved was one of the lowest ever for Indian Banks. Both Bharti Airtel and HDFC Bank bonds were first-time USD-denominated bond issuances from these issuers.

Global investment funds and wealth management firms continued to chase for higher yields in emerging markets, such as India, amid near zero benchmark interest rates in the US and spreading sovereign debt crisis in Europe. Further, US Federal Reserve's initiative to pump in more cash by purchasing USD 85bn of bonds per month has resulted in excess cash in the markets.

Suzlon Energy Ltd (NR/NR/NR), the troubled Indian wind turbine maker that failed to repay its USD 209mn convertible bonds last year, also sold USD 647mn 5-year bonds. The bonds, backed by unconditional and irrevocable letter of credit from State Bank of India, were priced at 4.97% yield. The bonds were issued through its Netherland based wholly owned subsidiary, AE-Rotor Holding BV (Baa2/NA/NR). Bank of India (Baa3/BBB-/NR) priced USD 500mn 5-year bonds at 3.7% yield. The issuance received orders in excess of USD 800mn. IDBI Bank Ltd (Baa3/BBB-/NR) issued USD 500mn 3.75% European Medium Term Notes (EMTNs) maturing in 2019. The new issuance pipeline over the coming months also looks heavy. State Bank of India (Baa2/BBB-/NR) and ONGC Videsh Ltd (Baa1/NR/NR) are considering issuing USD 1bn bonds each in the overseas market. TATA Steel Ltd (Ba3/BB/BB+), India's biggest producer of alloy, plans to raise as much as USD 1bn by selling high yield bonds and is in discussion with banks to arrange the issuance. Union Bank of India (Baa3/BBB-/NR) recently announced that it may consider offering USD-denominated Reg S senior bonds. Total USD-denominated bond issuances from Indian companies are expected to exceed USD 18bn in 2013.