Indian Railway Finance Corporation Ltd (IRFC) has successfully priced a US$500 million 5-year bond transaction. The Regulation S senior unsecured 5-year fixed rate notes ("Notes") were priced at 245 basis points (bps) over the benchmark 5-year US Treasury (5-year UST), which translated to a final coupon rate of 3.917% per annum, with an issue price at 100.00%. This bond transaction is the first index-eligible bond issue from IRFC, making it eligible for inclusion in the EMBI family of indices. IRFC had last accessed the US Dollar capital markets in 2012 with a US$300 million bond offering.
This US$500 million bond issuance was in accordance with IRFC's overall funding strategy and was in line with the funding targets set forth for IRFC by the Ministry of Railways ("MoR") for FY2013-14. The proceeds from this bond will be used to finance the acquisition of rolling stocks leased to the MoR.
Prior to announcement, IRFC conducted a comprehensive roadshow at Singapore, Hong Kong and London in January 2014. Thereafter, IRFC waited patiently for an opportune market window to launch the transaction.
Against a stable market backdrop overnight, IRFC elected to enter the market on February 19, 2014. The orderbook for a new 5-year bond was opened during the Asian morning session, with an initial price guidance of 265bps area over the 5-year UST. The books grew steadily throughout the Asian trading day, reaching over US$3 billion (representing an oversubscription in excess of 6x), allowing IRFC to revise the price guidance to 5-year UST+245-250bps. The transaction was eventually priced at the tight end of the range, at a re-offer spread of 5-year UST+245bps, representing a 20bps tightening from the initial guidance.
The trade saw strong interest from real money accounts – many global fund managers participated in the transaction with fund managers accounting for a vast majority (76%) of the final allocations. Banks, insurance/pension funds and private banks accounted for approximately 14%, 6% and 4%, respectively.
In terms of geographical allocations, approximately 54% of IRFC’s new bonds went to European accounts, 38% to Asian accounts, and the remaining 8% to offshore U.S. accounts.
Mr. Rajiv Datt, Managing Director of IRFC said, "I am extremely pleased with the outcome. The investors rightly recognized the rarity value of our credit, our unique business model and IRFC's status of being the closest proxy to the Indian sovereign. I believe that our first index-eligible bond has created the right benchmark for IRFC in the international bond markets and will bode well for our future issuances."
Mr. D.C. Arya, Director (Finance) added, "We timed the market well and the final deal parameters have certainly fulfilled IRFC’s funding expectations for this exercise."
The new Notes are expected to be issued and settled on February 26, 2014. The Notes will be listed on the Singapore Stock Exchange. The Notes are expected to be rated Baa3 by Moody’s, BBB- by Standard and Poor’s and BBB- by Fitch.
Australia and New Zealand Banking Group Limited, Barclays, Deutsche Bank and The Royal Bank of Scotland acted as Joint Lead Managers on this bond offering.