The Asian Development Bank (ADB) has issued its debut Indian rupee bonds in the domestic capital market of India. The issue has a principal amount of Rp5bn and a bullet maturity of 10 years. The lead arrangers of the issue were HSBC and ICICI Securities, with Bank of India and Union Bank of India participating in the syndicate as co-arrangers.
Priced at par, ADB’s rupee bonds carry a semi-annual coupon of 5.4% per year to yield 17bp over the 7.37% Indian G-Sec due April 2014. Before launching the issue, ADB and the lead arrangers conducted an extensive road show to present the deal to key institutional investors in Mumbai, New Delhi, and Kolkata.
Offered through a book-building process, the issue generated strong demand with total bids amounting to over Rp10bn or double the issue amount. The issue achieved a broad distribution with up to 60% of the bonds placed with banks, 21% with insurance companies, and 19% with mutual funds. The bonds will be listed on the National Stock Exchange.
ADB’s rupee bond issue represents many firsts in the Indian capital market: first issue by a foreign entity, first supranational issue, and first issue rated triple-A by Fitch, Moody’s and Standard & Poor’. Just as importantly, the issue also marks the first time that ADB has tapped the domestic bond market of a developing member country. ADB vice-president Liqun Jin says, “This pioneering transaction will enable ADB to accomplish a key developmental goal. ADB will be able to offer private sector borrowers in Indian rupee loans for projects in need of long-term local currency financing. These rupee loans provide the most effective protection against exchange rate risk, particularly as most ADB-financed projects generate revenues in local currency. In 2003, ADB’s local currency lending in India totalled about Rp5bn for three private sectors projects in priority sectors such as infrastructure, health care, and housing finance”.
The bond issue underscores ADB’s confidence in the Indian capital market. This, together with the new standards created through this issue in respect of regulatory framework, documentation, disclosure, clearing and settlement, and pricing benchmark, will r facilitate issuance by other foreign borrowers. In addition, the issue would help enhance liquidity in the domestic swap market, particularly as ADB plans to undertake interest rate swap transaction for asset and liability management purposes.
Thierry de Longuemar, ADB treasurer, adds “The issue is the first step in ADB’s strategy to tap the domestic bond markets of its developing member countries. ADB will consider issuing other local currency bonds particularly in those developing member countries where the bond markets are sufficiently developed and suitable projects with local currency financing needs can be identified. Currently, we are examining potential issues in the People’s Republic of China and Thailand.”