India’s state-run Oil and Natural Gas Corporation (ONGC) on July 7 priced the largest-ever international bond offering out of India as it raised the equivalent of about US$2.22 billion in a three-tranche, dual-currency transaction.

Issued through ONGC Videsh, the Reg S deal comprised of US$750 million bonds for five years, which were priced at 99.598% with a coupon of 3.25% to offer a yield of 3.338%. This was equivalent to a spread of 160bp over the US treasuries, or at the tight end of the final price guidance of between 160bp and 165bp.

The second tranche was also for US$750 million for 10 years, which was priced at 99.454% with a coupon of 4.625% to offer a yield of 4.694%. This represented a spread of 207.5bp over the US treasuries, also at the low end of the final guidance of 210bp area (+/- 2.5bp). The final tranche was for x525 million (US$720 million) for seven years, which was priced at 99.623% with a coupon of 2.75% to offer a yield of 2.810%. This was equivalent to a spread of 180bp over mid-swaps, likewise at the tight end of the final guidance of between 180bp and 185bp.

The landmark transaction represented the largest-ever dual currency Reg S issuance from Asia and the first dual-currency Reg S deal from India. It was also the largest-ever issuance out of India and the first-ever euro issuance from an Indian quasi-sovereign corporate. Finally, the deal achieved the tightest-ever spread for issuance across five years for the US dollar tranche and for seven years for the euro tranche.

In executing the transaction, ONGC Videsh conducted an extensive roadshow consisting of two teams to meet investors in London, Hong Kong and Singapore for the US dollar-denominated transaction and in continental Europe – Amsterdam, Frankfurt, Paris and again London – for the euro-denominated offering beginning July 2.

Positive market backdrop

The transaction was launched immediately after the roadshow following indications of strong investor demand as well as the ability of the issuer to react quickly to a positive market backdrop. The arrangers – BNP Paribas, Citi, Deutsche Bank, Royal Bank of Scotland and Standard Chartered – announced in the morning of July 7 a US dollar-denominated benchmark offering with an initial price guidance of 180bp area over the US treasuries for five years and 225bp area for 10 years.

Books built at a robust pace with the total orders exceeding US$2 billion within the first two hours of launch. The deal gained further traction from investors before Europe opened with the total demand amounting to more than US$4.5 billion by 3pm Hong Kong time.

The company further announced a euro transaction at 8.15am London time with an initial price guidance of between 190bp and 200bp over mid-swaps. The books were oversubscribed more than 2x within an hour of launch, with significant demand from real money European accounts.

On the back of such exceptional demand, ONGC released the final guidance for the US dollar tranches of between 160bp and 165bp for the five years and 210bp area (+/- 2.5bp) for the 10 years, and between 180bp and 185bp for the euro offering – eventually pricing all the tranches at their tight ends.

The US dollar tranches garnered total orders in excess of US$6.7 billion from more than 300 accounts, while the euro deal attracted demand of x1.9 billion from over 150 investors.

The five-year US dollar tranche was sold 55% in Asia, 42% in Europe and 3% in offshore US, while the 10-year tranche was allocated in Asia with 47%, Europe 45% and offsore US 8%.

The euro tranche was distributed in Europe with 78%, Asia 21% and offshore US 1%.

Proceeds from the offering will be applied to refinance a bridge loan used in the acquisition of upstream assets in Mozambique.