NSB debut brings emerging Asia back into fashion

Saturday, 14 September 2013 04:27 -     - {{hitsCtrl.values.hits}}

National Savings Bank much-anticipated debut in the dollar market issued a $750mln 5-year bond at 8.875%, tighter than the initial price talk of 9.25% area announced yesterday but much higher than Bank of Ceylon’s $500mln 5-year bond at 5.325%. The bonds now trade at a yield of around 8% and, extrapolating from that, analysts saw fair value for the new National Savings Bank Bonds at 8.25%. Hence, even after the yield reduction, the issuer still paid a new-issue concession of 50bp. However, leads argued that NSB and Bank of Ceylon are not exact comps because Bank of Ceylon is a commercial bank. They pointed instead at Sri Lanka’s own October 2020s, which were trading at 7.35%. They also said that if the sovereign were to come up with a new 5-year bond it would probably have to pay around 7.5% in yield. Yet, even using that gauge, the policy bank came some 127bp back of the sovereign, a premium which usually stands more around 100bp, suggesting the new issue still looked attractive compared to the sovereign. The price attracted a USD2.3bn order book with 175 accounts participating. That allowed the issuer to increase the deal to USD750m from USD500m. The fundraising also brought a new state-owned issuer to the market from Sri Lanka, a sovereign that has stayed away from the market this year after issuing five bonds in the last six years. The sovereign has said that it will let its state-owned companies tap the market directly instead of raising the money and lending it to them. It has also eased related borrowing rules and now allows local banks to take offshore loans of up to USD50m a year and corporations up to USD10m without the approval of the central bank. Hence, NSB’s bond creates a benchmark for other companies that may come to the dollar market. Another potential issuer from the region is state-owned Sri Lanka Ports Authority, which expressed interest last year. According to a Moody’s report, several commercial banks from Sri Lanka are expected to tap the global market as well. These included National Development Bank and Development Finance Corp of Ceylon, which are expected to raise USD250m each. NSB added a change of control put at 101%, if the government ceases to own and control 100% of the capital stock of the issuer. The use of proceeds from the issue probably explains this aspect. Fitch said that the issue of the NSB bonds is closely linked to government policy requirements. The proceeds will likely be used to invest in Sri Lanka’s development bonds, dollar-denominated debt issued by the government of Sri Lanka. Funds would also be used for dollar and Sri Lankan rupee-denominated loans to state-owned entities and government-related projects, it said in a ratings note. Sri Lanka’s central bank sees 2013 economic growth at 7.5%, much higher than the International Monetary Fund’s estimate of 6.3%. Growth in Sri Lanka’s USD59bn economy slowed to 6.4% last year from a record high of 8.2% in 2011. (IFR/Thomson Reuters)