Oil India raises $1 billion in overseas bond sale

Mumbai: State-run oil and gas explorer Oil India (OIL) Tuesday became the first Indian company to sell USD 1 billion worth of debt in its debut US dollar bond sale programme.

The issue is in a dual tranche of USD 500 million each.

While USD 500-million, five-year money has been priced at US treasury plus 222.5 bps, the 10-year money of the same size has been priced at treasury plus 272.5 bps, merchant bankers said today.

The PSU raised the money to repay the bridge loan it had taken to buy Videocon's 10 percent stake in a Mozambique oil block in association with ONGC Videsh late last year.

"Oil India's debut USD 1 billion bond issuance is the largest inaugural RegS transaction from the country and the largest ever issuance by a PSU corporate to date, reflecting investor appreciation of OIL's strong credit quality.

"It reaffirms the international bond investor's strong interest for issuance by high-quality Indian issuers," Standard Chartered India Managing Director (Capital Markets) Jujhar Singh said Tuesday.

He said "Oil India benefited from being the first non-financial corporate issuer in the USD markets for 2014, generating a very large order-book and tightening the final pricing by 27.5 bps for each of the two tranches from its initial guidance, which is a commendable feat."

A Regulation S transaction means that US-based American investors cannot participate in the issue.

Late last year, Oil India had teamed up with ONGC Videsh to buy Videocon's 10 percent stake in Mozambique's Rovuma Area 1 oil block for USD 2.475 billion. The 10 percent stake of Videocon is currently split in 40:60 ratio between the two PSUs.

Deutsche Bank, another joint book-runner along with StanChart, Citi, HSBC, RBS, said this is the largest Reg S trade ever done from India as also the largest inaugural Reg S issue.

Deutsche Bank said the final pricing got compressed 27.5 bps across both the tranches despite a weak market. The German i-banker said the issue will mature on April 17, 2019 and April 17, 2024, respectively and carry a coupon of 3.875 percent and 5.375 percent. The issues carry a re-offer yield of 3.909 percent and 5.437 percent, respectively.

Early this month, Reserve Bank left the key policy rates unchanged. The pipeline for forex debt is bulging with PSU heavyweights like OVL, OIL and large private corporates like Bharti queueing up to raise up to USD 5 billion through bond sales in the US and Europe.

Last month Bharti reportedly said it would tap the forex debt window for USD billion by July out of which USD 400 million will be raised shortly.

According to merchant bankers, despite the spike in interest rates in the West following the US Fed's tapering of its easy money policy, Indian companies can still secure credit up to 500 bps cheaper than the onshore markets even after hedging.

ONGC Videsh is tapping the forex debt window to raise up to USD 1 billion in bond sale to pre-pay a bridge loan of USD 2.2 billion it had raised earlier this year for the Mozambique oil block deal.

Power Finance Corp (USD5 00-700 million) and Rural Electrification Corp (up to USD 1 billion) are also on the lookout, according to i-bankers, while IFCL is eyeing close to USD 1.5 billion.

The domestic companies' overseas bond street journey was opened by Indian Railway Finance Corporation in early January with a USD 500 million issue, which got subscriptions of USD 3 billion and was priced at a coupon of 3.917 percent.

After a massive bond sale last year worth USD 16 billion, up 60 percent over 2012, the domestic companies have been going slow to tap international bond market following rising interest rates there.