ICICI has established itself as the most innovative and prolific of India’s offshore borrowers on the back of frequent visits to the international debt markets. But analysts’ warnings its borrowing binge might result in investor fatigue appear to have been vindicated, as Jonathan Rogers reports.
ICICI has borrowed across a range of currencies in the loan and bond markets over the past few years. It hoped to cultivate a loyal, offshore investor base in order to fund its ambitious overseas expansion programme. The company dreams of building up its footprint in Europe and the Middle Europe by opening new branches or beefing up the capital of existing branches.
The bank’s borrowing volume has ramped up steadily over the past five years in both the domestic and cross-border bond markets, and in the international syndicated loan markets.
Domestically the bank raised US$1.7bn-equivalent last year, having borrowed around US$350m-equivalent over the previous two years. International investors’ ravenous hunger for ICICI’s paper had allowed it to absent itself from borrowing in the onshore markets.
The offshore loan markets were wildly enthusiastic about wearing ICICI risk. The bank was able to raise a chunky US$1.9bn via offshore syndicated loan markets in 2007, versus an average annual total over the previous three years of US$400m.
ICICI started 2007 with a bang: it priced the largest bond deal from Asia (ex-Australia and ex-Japan) via a US$2bn three-tranche 144A issue. The deal represented the first three-tranche international debt deal from an Indian bank and almost overtook the total US$2.08bn raised by Indian borrowers in the offshore markets last year.
The bond consisted of a cumulative subordinated US$750m Upper Tier II 15-year non-call note, a US$500m senior three-year FRN and a US$750m senior five-year fixed-rate tranche. The deal was massively oversubscribed, with an order book of US$8bn allowing it to be issued at the top end of the US$1.3bn–US$2bn size leads Citi, Deutsche Bank and Merrill Lynch had flagged to investors during global roadshows.
ICICI’s Singapore branch followed this up in March with a €500m (US$666.7m) two-year bond – the first euro-denominated public transaction from an Indian borrower. This garnered three times book cover via leads BNP Paribas, Citi, Deutsche and HSBC.
Next, in May ICICI brought India’s first sterling-denominated bond – a £350m (US$689) three-year via the same group of leads. The deal generated sufficiently frothy demand to allow the bank to tap it for an extra £50m a month later, coming at gilts plus 82bp – one basis point tighter than the original issue spread.
And ICICI UK, the bank’s UK subsidiary, issued a US$500m five-year FRN in February via Barclays Capital and Deutsche. This was again followed up in June with another three-year of the same size, this time via Citi, Lehman Brothers and Merrill.
The bank kept the momentum going with a US$1.5bn-equivalent three-tranche yen denominated syndicated loan, arranged by 10 international banks, which garnered demand from 18 banks in syndication. It was India’s largest-ever offshore syndicated loan from a financial institution.
But perhaps the most impressive deal, in terms of the bank’s willingness to be adventurous, was the €60m (US$94.6m) three-year Schuldscheindarlehen issue brought by ICICI Bank UK, a subsidiary of ICICI Bank India, in March, via HSH Nordbank. The deal came at three-month euribor plus 140bp, equivalent to US dollar Libor plus 150bp – well inside the 200bp cost of protection implied on ICICI CDS at that tenor.
The deal was placed to 11 European investors and marks the first time an Indian borrower has used this particular instrument.
But rarely can an issuer have turned from high profile innovator to almost complete recalcitrance in such a short period. ICICI has issued nothing this year so far in offshore public markets, preferring to stick to issuance in domestic markets, where it has raised just US$566.8m-equivalent through eight deals. A combination of the sub-prime mess and ICICI’s hefty total of offshore debt explains this cold-shouldering from the G3 markets.
Whether ICICI can turn this around remains to be seen; its five-year CDS blew out to over 300bp, or around 50bp over a week, following rumours of a US$1bn offshore bond recently. At the Libor plus 400bp level, a new deal would need to be priced at approximately 100bp negative basis to its cost of protection at that tenor. Its shareholders would hardly be best served by the bank bringing a deal at such extortionate funding levels.