July 13, 2018 / 9:35 AM / 9 months ago

Yes Bank lines up offshore loan test

Hong Kong, July 13 (TRLPC) - Yes Bank is testing appetite for Indian bank risk among international lenders with the first sizeable offshore loan from the sector since authorities uncovered the biggest fraud in the country’s banking history.

The US$400m three-year loan will be a barometer of sentiment and will set a benchmark for loan pricing for Indian bank risk in the aftermath of the massive fraud at Punjab National Bank.

The PNB scandal has soured sentiment among international investors and lenders already concerned about non-performing loans and losses in the sector.

Yes Bank’s latest loan is its second transaction of the year after a US$300m three-year loan crawled to a close following a six-month syndication.

“Risk appetite among international lenders for Indian bank paper shifted dramatically after the revelations of the fraud at PNB,” said one loans banker in Singapore. “Other unsavoury developments compounded the problems, as a result of which the handful of loans for Indian bank borrowers that had been mandated earlier at tighter pricing suffered in syndication.”

The fraud first unfolded in late January when PNB, India’s second largest state-owned bank, filed a police complaint against some jewellers, alleging their collusion with two of its staff to defraud it of Rs2.81bn (US$43.16m). By early March, the fraud had ballooned to US$1.97bn and engulfed four other state-owned lenders – Allahabad Bank, State Bank of India, UCO Bank and Union Bank of India – for additional exposures of US$1.29bn combined. COMPOUNDING WOES Other corporate governance issues reared their head with ICICI Bank, the country’s third-largest lender by assets, appointing a new chief operating officer in June as its chief executive went on leave pending a probe over an alleged conflict of interest. This added to poor financial results for Indian banks earlier in the year.

For the quarter ended December 31 2017, 16 of India’s 21 state-owned banks registered losses, with SBI, the country’s largest bank, reporting its first loss in more than a decade, according to rating agency Fitch.

“The Indian banks’ NPL ratios aside, there are also a lot of fraud cases coming in. The government has to step in to address these concerns that have affected the banking system, otherwise investors will lose confidence in this sector,” said one loans banker at a Taiwanese lender in Singapore.

Loans for SBI, Axis Bank, Export-Import Bank of India, ICICI Bank, IndusInd Bank and PNB itself have struggled to attract lenders. As a result Axis, Exim India, ICICI and PNB secured bilateral or club loans with a handful of banks. INAUSPICIOUS TIMING Loans for Yes Bank and IndusInd were launched in January and SBI’s deal was launched in late May after being mandated in early March.

Yes Bank and IndusInd had finalised pricing long before the PNB scandal broke out. Yes Bank’s US$300m three-year loan closed earlier this month with five banks joining in syndication for US$180m combined – a good outcome considering the prevailing sentiment for Indian bank risk. The deal offered top-level all-in pricing of 105bp based on an interest margin of 80bp.

Its latest US$400m three-year loan offers a top-level all-in of 114.48bp based on a margin of 95bp over Libor and an average life of 2.67 years. The all-in pricing is only 10bp richer than the US$300m loan, while the margin is 15bp higher.

IndusInd’s US$500m three-year loan closed in early May with the five original mandated lead arrangers and bookrunners ending up with around US$329m combined. The loan paid a top-level all-in of 105bp based on a margin of 80bp over Libor and a remaining life of 2.75 years.

SBI’s US$750m three-year loan pays 90bp all-in, based on a margin of 70bp over Libor and a remaining life of 2.6 years.

Given the frequency of Indian bank loans in the offshore markets, a sense of fatigue has also built up among some lenders, who are close to their limits to the sector.

“It is getting more difficult to get internal credit approvals because of the negative news. While we have been very supportive of the Indian banks in the past, we are very selective now as we already have exposure,” said one Taipei-based banker. (Reporting by Prakash Chakravarti, Evelynn Lin and Chien Mi Wong; Editing by Chris Mangham and Vincent Baby)

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