INDIA’s largest private sector company, Reliance Industries, took advantage of the sovereign’s rating upgrade last week to access the offshore bond market and priced on November 20 an US$800 million offering in an opportunistic trade.

The Reg S/144A 10-year deal was priced at par with a similar coupon and re-offer yield of 3.667%. This represented a spread of 130bp over the US treasuries, or at the tight end of the final price guidance of the 135bp area (+/- 5bp). This was the tightest ever spread for an Indian entity for a 10-year paper and the tightest ever spread for a 10-year BBB corporate issuer from Asia, outside of Japan, post the global financial crisis.

The coupon was also the lowest ever achieved by an Indian corporate for a 10-year bond. The notes held well in the secondary market and were quoted at just around re-offer at 130bp-131bp after lunch on November 21.

The transaction follows an announcement from Moody’s Investors Service on November 17 upgrading India’s sovereign rating to Baa2 from Baa3 with a stable outlook. This puts Moody’s one notch up of S&P Global Ratings and Fitch Ratings, which has India on BBB- also with stable outlook.

“Reliance Industries is among the highest profile names in Asia and has a well-established investor base. As a result, it was able to undertake opportunistic transactions,” says a banker familiar with deal.

In terms of execution strategy, the arrangers announced the deal in the morning of November 20 with an initial price guidance of the 150bp area over the US treasuries. The order book built well during the course of the day and peaked at US$2 billion ahead of the announcement of the final price guidance, which was revised to 135bp area (+/- 5bp). The offering was eventually printed at the tight end, achieving a price compression of 20bp from initial guidance to final pricing.

In terms of relative value, Reliance managed to price the new deal inside its secondary curve, the banker explains. Looking at its existing 2025 bonds, which were basically seven-year bonds at this stage, they were trading at the time of pricing at 112bp over treasuries, which was a G-spread of 122bp.

There was obviously some curve difference between the seven-year and 10-year paper. Using as references the recent issuances from the likes of Nan Fung International Holdings, Sinopec, Telstra and CK Hutchison, which have recently printed 10-year bonds, there was a seven- to 10-year curve of around 16bp, which put their value at around 138bp over the treasuries.

Another way to compare the new Reliance bond was to look at the existing India curve with the likes of ICICI Bank, Adani, and Oil and Natural Gas Corporation, which were averaging 19bp between seven-year and 10-year paper, which gives a fair value of 141bp over the treasuries.

“Clearly, Reliance priced its new bonds inside where its curve should be and that very much reflects the rarity of the credit and the positive sentiments around the India rating upgrade,” the banker adds.

The use of proceeds from the bond issuance is strategic as they will be utilized to redeem Reliance’s US$800 million 5.875% senior perpetual notes, which are callable in February 2018.

The final order book amounted to over US$1.3 billion from 90 accounts with 62% of the bonds sold in Asia, 25% in the US and 13% in Europe. By type of investors, fund managers accounted for 57%, insurance companies and pension funds 26%, banks 11% and public sector 6%.

Bank of America Merrill Lynch, Citi and HSBC were the joint global coordinators for the transaction, as well as joint active bookrunners along with Barclays, J.P. Morgan and Standard Chartered. Acting as joint passive bookrunners were ANZ, BNP Paribas, Credit Agricole CIB, Deutsche Bank, DBS, Mizuho Securities, Morgan Stanley, Scotiabank, Societe Generale CIB and SMBC Nikko.

S&P Global Ratings, which assigned a BBB+ rating to the offering, notes that Reliance continues to bolster its business profile with new growth projects in its already large, integrated and efficient oil refining and petrochemical businesses. The completion of recent investments in the refining and petrochemical segment will further add to the company’s cash flows.

“Reliance’s diverse businesses with high levels of integration help offset the cyclicality inherent in the oil and gas, and petrochemicals industries,” it adds.