Largest power producer NTPC on Tuesday raised USD 500 million from overseas bond sales at 305 basis points over the US treasury,making it one of the cheapest 10-year dollar bond sales by a domestic corporate.
The issue,which was oversubscribed a full eight times,is also the first one after the government last week relaxed external borrowing route by slashing the withholding tax on such funds to just 5 from 20 percent. This is also the first by a government-owned company this year.
According to merchant banking sources,which included Citi,RBS,Barclays and Deutsche Bank,today’s sale is part of the USD 2 billion overseas borrowing (medium term note) that the state-run power utility had planned way back in 2006,when it had mopped up USD 350 million in 10-year dollar money through unsecured bonds and another USD 500 million last year. NTPC officials could not be contacted immediately.
On the pricing,an i-banking source said the final pricing was fixed at 305 basis points over the US treasury (which is 0.25 percent),resulting in a yield of 4.764 percent per annum.
This is significant as the guidance was 325 bps over the US T-bills,and the final payable coupon is fixed at 4.75 percent per annum,sources said.
A merchant banker said,the huge response to the issue further reiterates that foreign investors are only happy to buy quality debt from domestic corporates.
All the recent issues,kicked off by SBI by raising USD 1.25 billion in July at record low rates,which was followed up by USD 750 million by Exim Bank in two installments,ICICI Bank (USD 750 million),Axis Bank (USD 250 million),IDBI Bank,Indian Overseas Bank,Union Bank etc,had huge oversubscriptions from foreign investors,especially those from Asia.
Today’s sale,which has a BBB- rating from both S&P and Fitch Ratings,is part of NTPC’s euro-bond medium term note (E-MTN) offering,sources said,adding that the money was raised in US dollars. An E-MTN means debt raised in US dollars but in which American resident investors are not allowed to participate.
On the successful completion of the bond sale,Rajiv Nayar,heads of capital markets origination division at Citi India,which was the lead-arranger for the deal,said,”We see reduction in withholding tax to 5 percent as a key driver for increased issuance activity in the USD-bond markets by domestic corporates.
“NTPC is the first to take advantage of this move and received a very positive response.The issue was oversubscribed by over eight times,at 4.75 percent coupon for 10 years. This sets the right tone for other domestic corporates to follow,”
He further said,this transaction marks the first USD bond issuance by a PSU this year,demonstrating the strength of the underlying credit and the strong management of NTPC.
Nayar further said this NTPC issue is the second consecutive USD bond offering by Citi for the company.
On the investor profile,a merchant banking source said Asian investors constituted 62 percent,followed by Europeans at 31 percent and US offshore investors accounted
for 7 percent.
Out of this fund managers constituted 57 percent,bank,private banks 18 percent,and i-banks 14 percent,insurers and pension funds 8 percent and others 3 percent.