Synopsis

ICICI Bank's $1 billion dollar bond sale via GIFT City, which drew strong global investor demand and secured lower borrowing costs, is expected to spur more Indian lenders to tap overseas debt markets under the RBI's subsidised hedging facility.

ICICI Bank's successful inaugural dollar bond sale, marked by strong investor appetite and a low interest rate, is expected to encourage more domestic lenders to tap overseas debt markets in the coming weeks as banks seek to lock in competitive funding costs amid sustained global demand for Indian financial paper.

The private sector lender has raised $1 billion through a five-year dollar-denominated bond issued via its GIFT City branch, doubling the deal size from an initially planned $500 million after attracting strong investor demand. The benchmark-sized issue was initially marketed at around 130 basis points over US Treasuries, but heavy oversubscription allowed ICICI Bank to tighten pricing to around 100 basis points, resulting in a fixed coupon of about 5.459%, payable semi-annually. A basis point is a hundredth of a percentage point.

The bonds are scheduled to be allotted on July 30.

"The success of ICICI Bank's transaction demonstrates that high-quality Indian bank credit continues to enjoy strong sponsorship from global investors despite a busy primary market," one banker involved in the deal said on condition of anonymity. "The ability to tighten pricing by around 30 basis points and double the issue size sends a strong signal for other issuers waiting on the sidelines."

The successful offering marks a sharp contrast to that of Bank of Baroda, which last month shelved its planned dollar bond sale after investors sought a wider spread over US Treasury yields, citing a glut of Indian issuances in the offshore market. People familiar with the matter said Export-Import Bank of India, National Bank for Financing Infrastructure and Development, and Bank of Baroda are now preparing to raise dollar bonds under the Reserve Bank of India's subsidised hedging facility, which is aimed at lowering the cost of overseas borrowings. Bank of India said it is targeting $1.2 billion through FCNR(B) deposits and a further $2 billion from overseas borrowings, including via its Medium Term Note programme.

"Borrowers now have greater confidence that they can achieve attractive pricing under the RBI's hedging window," said a person familiar with the fundraising plans.

Last month, the RBI allowed banks and eligible state-owned financial institutions to access a subsidised hedging facility for external commercial borrowings, reducing the cost of managing foreign exchange risk as part of measures to support capital inflows and strengthen the rupee.

The initiative has already spurred a surge in offshore fundraising. Within six weeks of the facility's launch, Indian banks mobilised $20.7 billion under the special window, including $17.4 billion through Foreign Currency Non-Resident (Bank) deposits, $2 billion through overseas foreign currency borrowings and $1.3 billion via external commercial borrowings.

ICICI Bank joins HDFC Bank, Axis Bank in accessing the RBI-backed funding avenue. HDFC Bank raised $750 million through five-year senior unsecured dollar bonds issued via its GIFT City branch.