ICICI puts India bonds back on map

BONDS: Slow credit growth on subcontinent will curb further issuance

Source: Reuters/Vivek Prakash

Customers use ATM machines at an ICICI Bank branch in Mumbai.

ICICI Bank completed a successful US$750m bond offering last Monday that proved international investors were no longer shunning securities from India as they did just two months ago.

Still, no one expects a rash of deals to follow as lagging credit growth in India is curbing the funding requirements of Indian banks.

Investors froze out Indian borrowers in the summer of 2013 after the US Federal Reserve signalled it might scale back its massive monetary stimulus. The news triggered a free fall in the rupee and widened credit spreads.

The backdrop for Indian credits brightened after data in late September showed the country’s current account deficit grew less than expected in the third quarter, and the Fed indicated it was not ready to taper its bond purchases just yet. The rupee stabilised and Indian credits began to return to the primary market.

Indian banks are the country’s biggest issuers of dollar debt and they tend to jump on every opportunity to get better funding in overseas markets.

Yet, ICICI became just the third bank to come to the US dollar markets since early October.

Canara Bank was the first with a US$500m five-year Reg S deal in early October, but it had to offer investors 20bp more in yield. Canara’s offering was followed by one from HDFC Bank, which issued a US$500m three-year Reg S bond. HDFC managed to price the deal tight to its own curve, thanks to demand at the time for short-duration bonds.

ICICI was the most successful so far. The US$750m 144A/Reg S 5.5-year bond was priced without a concession to secondary levels of the lender’s outstanding paper.

The offering also received hefty orders US$3.5bn from 284 accounts. US investors showed strong interest, buying 36% of the bonds, European investors bought 30% and Asian investors bought 34%.

“Western accounts were big sellers of EM credits when the summer selloff happened, they are now strong buyers of these credits,” said another Singapore-based banker.

ICICI’s success, though, is not expected to start a rash of deals.

“It’s not like before when the success of one deal would be followed by others,” said a Singapore DCM banker. “Credit growth is slowing and Indian banks’ requirements for funds are lower now.”

Another Singapore DCM banker agreed: “Market access is clearly not an issue for Indian banks any more, but the issue is there is no growth on the demand side and there is slowdown on the corporate borrowing side.”

Indeed, credit growth in India dropped to its slowest pace since December 2009 in June amid tighter liquidity onshore and tougher borrowing conditions for banks earlier this year.

At the end of the second quarter, loan growth in India dropped to 13.4%, the lowest rate since December 2009, according to data from Thomson Reuters.

That compares to loan growth of 18.3% for the same period in 2012 and 21% in 2011.

India’s June quarterly GDP growth rate was also the slowest in four years, the latest data showed. Economic growth virtually halved in two years to 5% in the fiscal year to end-March – the lowest in a decade.

As banks lend less, they do not have an urgent need to borrow abroad, even if investor appetite is back.

ICICI puts India bonds back on map