India Bond House

IFR Asia Awards 2017
3 min read
Krishna Merchant

Trust Investment Advisors helped issuers across the credit spectrum raise funds in a busy year for the rupee debt capital markets following the Reserve Bank of India’s demonetisation exercise.

Trust helped India’s largest state government shore up the finances of its overstretched power companies with the first bond issue backed by state government revenues. It brought state-owned banks to the market for regulatory capital, maintained its dominance in bond underwriting for non-bank finance companies, and arranged perpetual bonds and structured financings for corporate clients.

Trust’s signature deal of the year was an offering of almost Rs100bn (US$1.6bn) of state-government guaranteed rupee bonds for Uttar Pradesh Power (UPPCL). The deal was almost a year in the making, as Trust worked hard to devise a way for a state electricity board to raise long-term funds, while addressing investors’ credit concerns around the sector.

India’s 2015 Ujwal Discom Assurance Yojana (UDAY) scheme made state governments responsible for servicing the bulk of the debt from the troubled electricity distribution sector, and UPPCL needed to offer plenty of safeguards to give investors comfort.

As well as a debt servicing reserve account and a guarantee from the state government, UPPCL included a direct debit mandate from Uttar Pradesh’s state revenue account with the Reserve Bank of India. It was the first time a state entity had provided more than one means of credit enhancement for a bond issue.

The structure overcame investors’ concerns and resulted in a far larger issue than initially expected. The deal also increased the acceptance of bond financings in the public sector, setting a precedent for other struggling state electricity boards.

The first two tranches of UPPCL bonds, rated AA (structured obligation) by India Ratings and Brickworks, were issued at coupons of 8.97% and 8.48%, with tenors ranging from four to 10 years across seven series of debentures. They offered a good carry opportunity over government securities and outperformed as more investors, including retirement funds and a major insurer, started buying in secondary.

Trust used its distribution skills to help public sector banks such as Punjab National Bank, UCO Bank, IDBI Bank and Bank of India to raise Basel III-compliant Additional Tier 1 bonds even in difficult market conditions, helping rebuild regulatory capital ratios.

Trust also completed complex transactions during IFR’s review period for clients including IL&FS Transportation and Inox Wind Infrastructure, which used irrevocable guarantees from the promoter to help enhance the rating and get a finer price. It helped Nirma raise perpetual bonds with call options and a coupon step-up, a rarity in the Indian market, and took advantage of investors’ growing familiarity with capital securities to help some non-bank lenders raise sub-debt.

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