HONG KONG: State-owned Indian OilNSE 2.18 %Corporation bumped up its latest five-year borrowing to $1.7 billion, its largest offshore loan on record, following an overwhelming response from lenders despite seemingly tight pricing.
A total of 17 lenders joined mandated lead arrangers and bookrunners State Bank of India and Westpac on the deal, in a rare example of a widely syndicated loan for an Indian state-owned entity.
The timing of IOCNSE 2.39 %’s latest loan and the richer pricing it offered than that of its previous borrowing proved to be the big draws.
“We didn’t have many other choices due to the lack of the deal flow at the end of last year and we would like to book some assets in the first half of this year to meet our target returns,” said a senior loan banker at a Taiwanese bank.
For a loan that offered a top-level all-in pricing of 114bp based on an interest margin of 100bp over Libor and an average life of 4.75 years, the successful outcome is a feather in the cap for the borrower and the leads.
“While the pricing is still tight, it’s more generous compared to IOC’s previous visit to the loan market in 2017,” said a loans banker at a top-tier Taiwanese bank. “Overall, we consider those state oil-and-gas companies from India as strong credits, and we’ve been lending to those assets in the past few years.”
In December 2017, IOC had paid a top-level all-in of 91bp based on a margin of 70bp over Libor for a $300 million five-year borrowing (with the same average life of 4.75 years). That deal reset the benchmark for offshore loans from India’s energy sector at the lowest all-in pricing on record for that tenor since the 2008 global financial crisis.
However, that loan attracted only four lenders other than original MLAB Bank of Nova Scotia, with Export Development of Canada taking up $165 million of the facility.
Indian state-owned oil and gas companies have scaled back their offshore borrowings, including bilateral facilities, in recent years, from $7.28 billion in 2017 to $4.12 billion in 2017 and just $2.15 billion last year.
However, in 2019, the tally could go higher again following the Reserve Bank of India’s relaxation of rules on external commercial borrowings (ECBs) for companies from that sector last October.
Indian state-owned oil marketing companies can now raise up to $ 10 billion combined through ECBs for working capital purposes with minimum average maturities of three to five years without the need for regulatory approval. The RBI has also waived the individual limit of $ 750 million-equivalent per financial year and the mandatory hedging requirements.
IOC’s syndication success also stands in stark contrast to State Bank of India’s $500 million five-year loan, which closed in early February to a tepid response despite paying higher pricing.
Only four banks joined SBI’s loan, which offered much richer top-level all-in pricing of 128bp based on a margin of 115bp over Libor and an average life of 4.625 years. Market participants attributed the lacklustre response on SBI’s loan to deal fatigue given how frequently India’s largest bank has borrowed in the offshore markets in the last few years.
“There’s too much SBI paper in the market,” said a Singapore-based syndicated loans banker close to the deal. “But we are happy to close the deal with some banks as opposed to none.”
Like IOC, SBI also had to pay up for its most recent borrowing. Last July, the Indian bankNSE 2.18 % closed a US$750m three-year loan with the nine MLABs failing to bring in any lenders in general syndication. That deal had offered a top-level all-in pricing of 90bp based on a margin of 70bp over Libor and a 2.6-year remaining life.