New Issue Review : ICICI Bank 7Y SGD 4%… 3.65%

Word out this morning of a new ICICI Bank (Baa3 stable /BBB- negative) SGD 7Y deal. Benchmark size ie. SGD 200-250 mio  minimum.

Coupon hinted at 4% (means you would be lucky with 3.75%). Current books in excess of SGD 500 mio.

Background :

• ICICI is the largest private sector bank in India (no government ownership)
• Largest in terms of market cap and 2nd largest bank in India by assets
• 2013 debt to be refinanced USD 738 mio only
• 5Y CDS level Libor +2.5%.  This 7Y SGD deal would work out to be Libor+2.9%, thus it can be said to be fairly priced
• Hearing leverage offered at 60%

Now lets look at alternatives and comparables for Indian names in Singapore.

My simple evaluation.

India (BBB- negative/ Baa3 stable) is dicey going ahead into their pre election year which means we are going to see serious campaigning. As to whether it will lead to a downgrade to SUB INVESTMENT grade in the next 1-2 years like the rating agencies are warning, it remains to be seen if they can contain their fiscal deficit (which is hard to contain when you have an election coming).

ICICI is a private company as compared to EXIM Bank (Baa3/BBB-) which is government owned. For a 2 year extension in maturity, I would not sacrifice a yield difference of less than 1%  because the 5Y interest rate is 0.4% lower than the 7Y interest rate. Thus the pick up would only be around 0.6%.

Indian Oil at Baa3 10Y at 4.13% does not really stand out in that case and maybe a switch would be warranted. Indian Oil came at a time when interest rates were close to their historic lows and rates are slightly higher these days.

Verdict on ICICI : Fairly priced given current interest rates ie. 7Y at 1.35% (historic low 1.10% and 2012 high of 1.82%). Stock price at 1Y high of 1188 INR on 7 Jan 13.  Risk of country downgrade and slowing growth in bank sector as well as interest rate spikes which are increasing in probability.