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ABN Amro, Daiwa Securities SMBC and UBS Investment Bank have acted as joint bookrunners and joint lead managers of a ¥13bn five-year debut international bond offering from Indian Railway Finance Corporation (IRFC). IRFC is the financing arm of the Indian ministry of railways. The transaction broke new ground as the first yen-denominated public issue out of India since 1991.

IRFC took the decision to issue in yen to take advantage of the scarcity of high quality Indian credits in that market. Official pre-marketing for the deal started on March 7, with price talk at 70bp over yen Libor. During the week there was increased nervousness in the market which caused all bonds including current Indian bonds to widen. Despite this and the extreme secondary volatility in the dollar credit markets, IRFC’s pricing did not change.

Priced at par, the five-year bonds carry a coupon of 1.43% to yield 70bp over yen swaps and 77.5bp over the benchmark JGBs.

The bonds were priced aggressively compared with other Indian credits. ICICI (Baa3/BB+) August 09 was quoted around 82bp over US$ Libor, while SBI (Baa2/BB+) December 09 and EXIM (Baa3/BB+) July 09 were quoted at 75bp over US$ Libor at the time of launch of the transaction.
“IRFC has been successful in pricing the tightest Indian offshore bond since the Asian financial crisis,” says a banker at ABN Amro. “This underlines the fact that there is strong demand for Indian credit, especially a quality sovereign-linked credit like IRFC. The decision to issue a JPY bond sheltered IRFC from the turbulence in the US$ market.”

“Given the high quality of the credit,” adds a banker at UBS, “we managed to build an impressive order book with primarily buy-and-hold accounts despite prevalent uncertainty in the markets. IRFC has been successful in setting a very important benchmark for Indian issuers.”

A spokesman at Daiwa Securities SMBC concurs and adds that they “are optimistic that this deal has opened another door for the yen markets.”
Strong investor demand helped generate an order book in excess of ¥25bn. Some 28 accounts participated in the transaction, and paper was placed with 20 of these. A broad range of investors took part with around 59% of the allocations going to banks, 29% to fund managers and 12% to insurers. Around 15% of the bonds were placed with investors in Japan, 54% with investors in ex-Japan Asia and 31% with investors in Europe. It is outstanding that Japanese investors participated, since pricing was much tighter than where “BBB “credits trade in the domestic market and given the limited audience for Euro yen.

Moody’s and Standard & Poor’s rate the bonds Baa3 and BB+.