* IIFCL could extend dollar curve to 30 years
* Benchmark may create new funding avenue for local
* Dollar market more liquid and deeper in the long end
By Manju Dalal
Aug 3 (IFR) - India is poised to offer global investors the
closest thing yet to a long-dated sovereign bond, in a move that
will test international confidence in the country's long-term
Under instruction from the finance ministry, state-owned
India Infrastructure Finance Company (IIFCL) has rekindled plans
for a US$1bn Global MTN programme. The company last month asked
bankers to make preparations for a long-term US dollar bond,
with a tenor of 25 or even 30 years.
"We have met with the arrangers and the process of setting
up the MTN will begin this month," an IIFCL official told IFR.
IIFCL's move comes at a time when India is facing intense
pressure to restore confidence among international investors
following a 25% slump in the rupee against the US dollar over
the past 12 months. The government has so far resisted calls to
sell overseas sovereign bonds to increase access to US dollars
and prop up its currency, but a growing number of international
fundraisings suggests that attitude may be changing.
Export Import Bank of India and State Bank of India have
raised a combined US$1.75bn from five-year bonds in the past two
weeks, illustrating that Indian debt still enjoys an
enthusiastic following overseas.
IIFCL's planned 30-year maturity, however, would be the
longest on any dollar bond from India's public sector.
The infrastructure lender made an unsuccessful attempt at an
international deal three years ago, and had even set up an EMTN
programme before adverse market conditions forced it to drop its
fundraising plans. Now, however, the lender is reviving the idea
with the same set of eight to nine arrangers, including
Barclays, Credit Suisse, Deutsche Bank, HSBC and Standard
This time around it will have to reckon with investors'
concerns that India may lose its investment-grade credit rating,
after Standard & Poor's put its outlook on negative watch
earlier this year. IIFCL, which was set up in 2006, is rated
BBB- with a negative outlook by S&P, in line with the sovereign.
IIFCL is eyeing long-term funds to match its long-term
infrastructure loans and help finance India's yawning
infrastructure deficit. A series of power cuts last week that
affected as many as 600m people underlined the scale of the
problem, with the shortage blamed largely on policy paralysis.
A long-dated benchmark, however, would also bring wider
benefits to the local debt market, setting a reference point for
other Indian issuers to use when they come to market and,
potentially, saving them money.
Local interest rates are high, increasing the appeal of
dollar funding for the companies allowed to borrow overseas.
Excluding hybrids, only three Indian issuers have sold
dollar debt at 25 years or longer. Private sector conglomerate
Reliance Industries launched a 30-year bond in 1996, and again
in 2010, and even sold 100-year debt in 1997.
Reliance's bonds due 2040 were trading last week at 350bp
over US Treasuries - a mark IIFCL may be able to beat if it gets
an explicit government guarantee on the bonds.
Credit spreads are falling as investors return to Indian
bonds. India Exim, which like IIFCL is 100% state-owned, paid
355bp over Treasuries for its USD500m five-year bond last week,
creating the lowest coupon so far from India at this tenor. SBI
(60% state-owned) printed a USD1.25bn five-year deal a week
earlier at 375bp over.
On top of that, global appetite for long paper is running
high as ultra-low short-term Treasury yields force investors to
broaden their horizons in search of yield. China's Sinopec is
among the Asian issuers that have taken advantage this year,
with a 30-year bond in early May.
IIFCL in July launched 25-year and 30-year rupee bonds in
the domestic market, the first public sector company to do so.
The 9.36% coupon on the 30-year bond equates to around 320bp
over Libor in US dollars, according to a DCM banker. That
comparison may provide a realistic target for IIFCL in the
international markets, but the conversion is not perfect, based
on 10-year MIFOR in the absence of a 30-year quote.
Demand for long-dated paper remains weak in the domestic
market, as IIFCL's experience last month proved. The company
sold only Rs600m of 30-year bonds, making up a tiny fraction of
an Rs11bn dual-tranche transaction.