National Savings Bank prices 5-year through own curve

Thursday, 4 September 2014 00:00 -     - {{hitsCtrl.values.hits}}

IFR: State-owned National Savings Bank priced a $ 250 m offering of five-year bonds yesterday at a yield of 5.15%, much lower than the 8.875% yield it achieved on its debut issue of the same tenor late last year. Scarcity value and recent improvements in the country’s banking system made NSB’s second offshore bond offering attractive to credit investors. The BB-/B+ rated 144A/Reg S bonds also priced tighter than the five-year issue in June from SriLankan Airlines, NSB’s State-owned peer. That $ 175 m offering, with a Government guarantee, printed at 5.3%. NSB priced its $ 750 m debut five-year offering in November. “Paper from Sri Lanka has been well received by investors in recent years as they consider the country an improving story,” a banker on the deal said. The sovereign has not been a frequent borrower in the offshore market, so quasi-sovereign deals tend to receive strong bids, another banker on the deal noted. The strong demand, reflected in a huge order book of $ 2.1 b, helped the deal price 18bp inside its own implied curve, they said. Adding the curve extension to NSB’s existing 2018s points to an implied fair value of 5.33% for the new bonds. The paper also priced relatively tight to the sovereign’s bonds, which were quoted at 4.4% prior to announcement. Based on the implied curve for sovereign 2019s of 4.52%, the NSB bonds finished merely 63bp wider. One sell-side analyst expects the spread between NSB and the sovereign to widen in the medium term. “We see fair value [for the NSB paper] closer to 5.6%, though we see no immediate catalyst for spread widening,” the analyst wrote on a note to clients. In the short term, the bonds performed well in secondary, tightening another 5bp on the first day of trading. The investor enthusiasm may be warranted. Moody’s said in July that the outlook for the Sri Lankan banking system is stable, as the economy is now recording GDP growth of 7%, one of the fastest rates in Asia. “Since the end of the long civil war in 2009, the country has been rebuilding, and a pipeline of infrastructure projects is expected to boost economic growth, together with an accommodative monetary policy,” Srikanth Vadlamani, Moody’s Senior Analyst said in a report. “In such an environment, loan growth will rebound and asset quality will stabilise.” Moody’s estimates 14% loan growth for 2014 and the agency does not view this as excessive. “Instead, the key risk to the outlook for economic growth is Sri Lanka’s high current account deficit and a resulting reliance on external debt capital flows. This structural weakness exposes the economy and currency to shifts in investor sentiment,” said Vadlamani. Like Sri Lankan sovereign paper, the NSB bonds received strong interest from US investors, who bought 34%. “US investors have always liked Sri Lanka,” the second banker on the deal said. Asian and European investors bought 37% and 29%, respectively. The deal also received a high-quality order book with 80% distributed to fund managers. “We got all the high-quality investors we were hoping for,” the second banker said. PBs, banks and insurers bought 11%, 8% and 1%, respectively. As in the first offering, the latest comes with a change-of-control covenant at 101 if the Government ceases to own and control 100% of the issuer. Barclays, Citigroup and HSBC were joint bookrunners.