Axis completed a roadshow in London on Wednesday via
Barclays Capital, HSBC, JPMorgan and Standard Chartered. The
Baa2/BBB- rated bank announced earlier this week that a
benchmark-sized dollar Reg S senior bond would be issued,
pending roadshow feedback.
However it returned to Mumbai empty-handed on Thursday after
weaker than expected US consumer confidence data released on
Tuesday triggered a wave of profit-taking in emerging markets
and forced credit spreads wider - just before the rally today
triggered by the news that the US recession officially ended in
the third quarter of the year.
There were high hopes this week that Axis would issue a
competitively priced deal, after a blowout trade from State
Bank of India on October 19. The borrower sold $750m of five
year bonds after receiving orders worth $5bn from 250
The SBI bonds due 2012 were priced at 190bp over mid-swaps, or
226.4bp over Treasuries, coming at a re-offer price of 99.779
and a coupon of 4.5%. That was at the tight end of guidance of
190bp-200bp, tightened from an initial range of 200bp-215bp
SBI is "now clearly the new reference point for all Indian bank
issuers" said a bookrunner on the Axis transaction this week.
However, credit spreads for the 2012 bond widened from 230bp
over Treasuries on Tuesday, 237bp on Wednesday to 247bp by the
end of Thursday some 20bp wide of its spread at
"The 17bp widening of credit spreads for SBI this week alone
means investors dont want to buy new Indian bank issues
and if they did, the premium would have been unacceptable to
the borrower," said a banker on the Axis deal on Thursday. "It
would have been absolutely the wrong thing to have done the
deal today anyway as it would have got crushed in the
Another banker close to the issuer said: "Axis Bank is not
desperate for cash, it will monitor the market and issue if the
price is right." Axis finances itself from domestic sources.
The proceeds of the debt sale would have been used to finance
foreign currency lending for Indian corporates in overseas
markets. However this business is unlikely to have enough
demand in the near-term to justify an expensive dollar bond
issue, said an Indian bank analyst in Mumbai.
The widening SBI credit spreads this week mirrored the selloff
in Asian credit markets and global equities. In addition,
Perusahaan Listrik Negara, Indonesias state-owned
electricity distribution utility, looked likely to postpone a
dollar bond until next week at the earliest (see separate
story). Mexichem, a Mexican chemicals maker, pulled a deal
after completing a roadshow in Asia this week via Bank of
America Merrill Lynch.
The surge in new deals over the past two weeks has contributed
to investor fatigue. "The market has been swamped with new
deals and there is always a danger that investors dont
have enough time to do all the necessary credit work," said
Claudia Calich, senior emerging markets portfolio manager at
Invesco in New York.
Brian Jackson, senior strategist at Royal Bank of Canada in
Hong Kong, said there had been a drop in risk appetite, and
that markets by region and asset class were highly correlated.
"It is understandable for investors to lock in some profits
after massive rallies since March," he said.
Nevertheless, bankers say the strong demand for Indonesian high
yield bonds this week highlights the markets ability to
support the "right credit for the right price," said an Asian
debt capital markets banker in Singapore.
"There is a lot of cash still on the sidelines. But I think a
lot of Asian borrowers will choose to be more selective and
adopt more of a wait-and-see approach," he said. In addition,
news that the US economy grew 3.5% year-on-year in the third
quarter has ignited optimism for the global economy.
Nevertheless, market developments this week highlight the
stubborn correlation between global equities and Asian credit
spreads. Given the intra-day volatility of global bourses,
leads now face greater execution hurdles for new deals if this
trend strengthens. In addition, company earnings for the third
quarter are due soon while the US Federal Reserve Open Markets
Committee (FOMC) will stage a two-day interest rate policy
meeting next week. This busy calendar, combined with investor
profit-taking, highlights the hurdles in issuing new deals
before year-end, and any window for new issues may not stay
open for long.