February 7, 2020 / 9:39 AM / 20 days ago

NTPC fires up Asia's largest yen loan

* Loans: Long-term deal is also Indian company’s biggest offshore financing

By Mirzaan Jamwal, Wakako Sato and Evelynn Lin

SINGAPORE/TOKYO/HONG KONG, Feb 7 (LPC) - Indian state-owned power producer NTPC has chosen the Japanese yen for its biggest foreign currency financing to date, with a US$750m-equivalent loan that highlights the appeal of low interest rates and long-term liquidity in Japan.

With tenors of up to 10 years, the deal is the largest yen-denominated loan for a non-Japanese Asian borrower. Bank of India, State Bank of India and Sumitomo Mitsui Banking Corp, the banks mandated on the deal, are providing the equivalent of US$100m, US$375m and US$275m, respectively.

While the trio will be on the hook ultimately for the borrowing, syndication will provide a test of appetite among Japanese and other Asian lenders because of the large size, the long tenor and existing exposure, particularly given the outcome of NTPC’s previous foray in Japan.

Last April, NTPC closed a US$300m-equivalent 10-year Samurai loan with only Aozora Bank joining in general syndication. The deal found few takers amid a glut of Indian companies seeking yen-denominated facilities, despite the loan paying richer pricing than a ¥39.42bn (then US$370m) financing completed in April 2018.

The 2018 facility, India’s first unsecured 10-year loan in the offshore loan market, attracted eight lenders in general syndication and paid a top-level all-in pricing of 105bp based on a margin of 95bp over Tibor and a weighted average remaining life of 10 years. Mizuho Bank, MUFG and SMBC were the leads on both deals.

WISER FROM EXPERIENCE

This time round NTPC is opting for a shorter tenor based on market feedback, according to a source close to the deal. NTPC is looking to raise three-quarters of the deal via a seven-year tranche and a 10-year portion for the remainder.

Other Indian borrowers have met with modest success on their shorter-tenor Samurai loans. Indian Railway Finance Corp, another state-owned entity, switched to a shorter tenor loan in August last year with a US$300m-equivalent seven-year loan that lured 10 lenders with a top-level all-in pricing of 93bp based on a margin of 90bp over yen Libor and a remaining life of 6.75 years.

By comparison, IRFC’s ¥26.23bn 10-year Samurai loan in September 2018 drew only three banks in general syndication. That deal offered a top-level all-in pricing of 100bp based on a margin of 80bp over yen Libor and a remaining life of 9.5 years.

Bankers consider IRFC to be a closer comparable to the Indian sovereign as it is a wholly owned financing arm of the Ministry of Railways, whereas the government owns a 54.14% stake in NTPC. Although both companies are rated Baa2/BBB−/BBB− (Moody’s/S&P/Fitch), NTPC is expected to pay richer pricing than IRFC.

Indian borrowers have increasingly tapped liquidity in Japan in the last couple of years, raising over ¥200.45bn from nine yen-denominated loans in 2019 and ¥146.59bn via five such loans in 2018, according to Refinitiv LPC data.

CHANGE IN STRATEGY

NTPC is returning to the yen market to diversify its debt funding mix, according to the source close to the situation.

US dollar-denominated financings made up about 65% of the company’s total foreign currency loans, while yen and euros accounted for around 19% and 16%, respectively, as of March 31 2019, according to NTPC’s annual report.

The Reserve Bank of India’s external commercial borrowing rules allow eligible companies to borrow up to US$750m offshore in any financial year without prior approval, and NTPC has opted to raise the entire amount through the yen loan.

The unprecedented size means the underwriters will have to find every ounce of yen liquidity available – not just with Japanese lenders, but also among other banks in Asia.

Last October, retail finance company Fullerton India Credit closed a US$250m-equivalent three-year term loan after attracting 14 lenders in syndication, including a ¥1bn commitment from Taiwan’s Far Eastern International Bank.

In April 2019, mortgage lender Housing Development Finance Corp raised a ¥53.2bn five year-term loan, attracting Bank of China, Bank of India Tokyo branch and Bank of Taiwan among five lenders joining in syndication.

NTPC has shied away from the offshore bond market in the current fiscal year. The company’s last foray in the G3 currency bond markets was a US$450m five-year offering in March last year that priced at 99.896 with a coupon of 3.75% to yield 3.773%.

The company is a frequent borrower in the onshore debt markets in India where its average cost of borrowings through loans was 6.91% in the first six months of the current fiscal year, compared with 6.79% in the corresponding period a year earlier, according to its earnings presentation in November.

In late July last year, NTPC raised Rs43bn (US$626m) from 10-year bonds at 7.32% following a RsRs30.57bn three-year offering at 7.93% earlier in May. (Reporting By Mirzaan Jamwal, Wakako Sato and Evelynn Lin; Editing by Prakash Chakravarti and Steve Garton)

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