Revamp helps IDBI get better price for $ bond

The Industrial Development Bank of India's (IDBI) has raised $250 million through its overseas bond offering at a cost of 5.19 per cent. The bonds carry a coupon of 5.125 per cent and were issued at a discounted price of $99.69.

The institution's restructuring has helped it get a better price for the bond issue that closed on Friday. The 5-year bond issue has been priced 23 basis points (bps) lower than what IDBI had to pay in March 2004.

The fixed rate pricing works out to US treasury (3.567 per cent) plus 162 bps against US treasury plus 185 basis points on the 5-year bond issued in March 2004, IDBI executive director, O V Bundellu, said.

The pricing is also 2 to 3 bps less than the secondary market yield on an IDBI bond with a residual maturity of four years and three months.

"The pricing of the bond issue and the book size of $600 million is a recognition of IDBI's transformation into a universal bank," investment bankers said. Barclays Capital and Merrill Lynch lead managed the $250 million IDBI issue.

Bundellu said investors appreciated that IDBI kept its promise of March 2004 and achieved the target of converting the development financial institution into a banking company from October 1, 2004.

The IDBI offering was the third overseas bond issue in as many weeks from India. It followed Vedanta's $500 million and State Bank of India's $400 million issues.

Investment bankers said the appetite for the IDBI issue points to a keen international investor interest in the India story as well as the credit story of improving IDBI.

Over 70 orders were received for the IDBI issue with equal interest from Asia and Europe. European demand was broad, underpinned by UK investors but interest also came in from Spain, Greece, Holland, Germany, Austria, Switzerland, France and Luxembourg.

IDBI was the first Indian bond issuer to hold a roadshow in Dubai resulting in banks from the Middle East contributing approximately 8 per cent to the final order book.

Asian investors received an allocation of 43 per cent, European investors 47 per cent, offshore US investors 7 per cent and the Middle East investors 3 per cent.

The IDBI issue was part of the $300 million it had planned earlier. IDBI plans to explore other instruments in order to further reduce their cost of borrowing on the balance $50 million.