Sun convertible float bares appetite for Indian bonds

The impressive response received by the recently concluded Sun Pharmaceutical Industries' convertible bonds (CB) shows that there is a good appetite for correctly priced Indian issues.

JPMorgan, the lead book-runner who bought the entire float and then sold it with fixed terms, said that foreign investors, who are not pure equity investors and want to cap their downslide, are eager to invest in Indian CBs, provided it is at the right value.

After the deal Sun Pharma has become one of the few Indian pharmaceutical companies to exercise such a large deal through the foreign currency convertible bonds (FCCB) route.

JP Morgan said that there is tremendous interest amongst Indian companies to raise capital through the FCCB route, especially those who do not need immediate equity, but would need it within three to four years.

Vedika Bhandarkar, managing director and head of investment banking, JPMorgan India, said, "Foreign investors who want to cap their downslide are eager to invest in Indian convertible bonds provided it is at the right value."

The company had earlier completed a fund raising program for $275 million including a $50 million upsize option. Late last week the company also launched the $75 million green shoe option.

Terms for Sun Pharma's five-year deal comprise an issue price of par and redemption price of 125.594 per cent to yield 4.61 per cent. The conversion premium was set at a 50 per cent premium to the stock's spot close of Rs 486.20 on November 17, 2004.

Sun Pharma had initially mandated Merrill Lynch and Morgan Stanley to do the deal in April, before moving on to ABN AMRO, Deutsche Bank and UBS in late September. However, none of the five were able to execute the deal, sources said.

JPMorgan officials explained that they were able to launch the deal as it remained close to the company throughout the whole process and was there when it decided to adopt a more pragmatic approach to what was achievable.

The Sun Pharma deal was sold to about 30 accounts. Geographically, the deal was split 80 per cent to Europe and 20 per cent to Asia. The US bank also had an advantage of completing a successful $110 million CB for Wockhardt in late September.