SGD New Issue Review : Tata International SGD Guaranteed Perpetual NC5

Issuer:  Tata International Singapore Pte. Limited
Guarantor: Tata International Limited
Rating:  Unrated
Format:  Regulation S, Registered Form and S274/275 of SFA
Size:  TBD
Maturity:  Perpetual
Issue: Guaranteed Senior Perpetual Capital Securities
Price Guidance: 7% area
Accounting Treatment:  100% Equity
Call Option:Callable by the Issuer at the 5th anniversary the                             “First Call Date”) and  on any distribution payment  date thereafter
Distribution Rate
1)From the issue date until First Call Date – fixed
Rate: rate of [ ]% (the “Initial Distribution Rate”) payable semi-annually in arrear,
2) From First Call Date and onwards – new fixed rate equal to the Initial Distribution Rate plus the Step-Up Margin of 300bps, payable semi-annually in arrear
Optional Deferral: Distributions deferrable at the discretion of the Issuer subject to the Pusher / Stopper on a cumulative and compounding basis
Pusher:  Yes, on ordinary shares of Issuer, Junior and Parity                     Securities(12 months look-back)
Stopper:  Yes, on ordinary shares of Issuer and Guarantor, Junior and Parity Securities
Redemption Events:
1) Gross-Up Event (Par),
2) Regulatory Event (Par),
3) Accounting Event (at higher of par or make-whole amount (SOR+1.5%) before First Call Date, at Par thereafter),
4)Change of Control Event (Par),
5) Breach of Covenant Event (Par),
6) Relevant Indebtedness Default Event (Par),
7) Clean up Call (at higher of par or make-whole amount (SOR+1.5%) before First Call Date,at Par thereafter),  Tax Event (at higher of par or make-whole amount (SOR+1.5%) before First Call Date, at Par thereafter)
Change of Control :  Step-Up one time only in aggregate of 500bps in a Change Step-Up of Control Event, and the Securities are not redeemed.(Decrease of 500bps if the relevant Change of Control Event is cured or  no longer exists)
Regulatory Event Step-Up: Step-up one time only in aggregate of 500bps in a  Regulatory Event,  and the Securities are not redeemed.(Decrease of 500bps if the relevant Regulatory Event is cured or no longer exists)
Breach of Covenant :  Step-Up one time only in aggregate of 500bps in a Breach Step-up of Covenant  Event, and the Securities are not redeemed. (Decrease of 500bps if the relevant Breach of Covenant Event is cured or no longer exists)
Relevant Indebtedness Default Step-Up: Step-up one time only in aggregate of 500bps in a Relevant Indebtedness Default Event, and the Securities are not redeemed. (Decrease of 500bps if Relevant Indebtedness Default Event is cured or no longer exists)
Use of Proceeds:  For general corporate purposes and repayment of existing debts
Other Details: SGD250 denoms, SGX-ST listing, English law

– New SGD guaranteed senior Perpnc5 announced with significant anchors in place
– Price guidance at 7% area
– Timing: As early as today

** PB concession: 50c **

** STRUCTURE
– Rare Guaranteed Senior PerpNC5
– Large 300bp stepup from yr 5
– Additional 500bps stepup upon Change of Control, Regulatory Event, Relevant Indebtedness Default, Breach of Covenant
– Dividend pusher & stopper, deferred distributions are cumulative & compounding
– Make-whole early redemption for Accounting / Tax Events

** TATA GROUP COMPS- USD & SGD **

TTMTIN (TML Holdings) Senior S$350m 4.25% 18 I+304 / 4.25%
TTMTIN (Tata Motors) Senior U$500m 4.625% 20 I+253 / 4.32%
– swaps to 4.12% in 5y SGD
TATAIN (Tata Steel) Senior U$500m 4.85% 20 I+255 / 4.28%
– swaps to 4.00% in 5y SGD

** SGD HYBRID COMPS **
Ascott Residence Trust Subordinated PerpNC19 S$150m 5.00% 4.90% YTC
*reset in yr5, no stepup

FNN Subordinated PerpNC19 S$600m 4.88% 4.74% YTM
*reset in yr 5, stepup 100bp in yr10

Some news.

“(Reuters) 29 Oct 2014 – High leverage in the Indian corporate sector could prevent any meaningful recovery in asset quality at lenders over the next 12-18 months, Moody’s Investors Service said on Wednesday, maintaining its “negative” outlook on the country’s banking sector.

Moody’s estimated India’s corporate sector had an average debt-to-equity ratio of more than 3 times, and would need a stronger economic recovery than currently projected by the credit agency to bring down the leverage.” http://in.reuters.com/article/2014/10/29/india-banks-moodys-idINKBN0II0QG20141029

What I wrote last year.

“Tata International is a privately held company, majority owned by Tata Sons Ltd which is rated AAA by ICRA and CRISIL in India. Tata International is rated AA- by ICRA (a local Indian credit rating agency).

Tata International has to pay up because private companies have no public accounts and thus, there is little transparency in their business. I would be tempted to say it is probably sitting on higher grounds than Tata Communication by just the business model and their closer association to the mothership – Tata Sons.” https://tradehaven.net/market/bonds-in-conversation-is-back-and-sitting-pretty-tata-intl-new-issue-review/

That Tata Sons 4.3% 04/2018 senior paper issued last year is indicating at 96/96.90 (5.59/5.3%), a credit premium of about 4.15% for a 3.5 year paper. This compares with the 5.35% premium we are getting for this new senior perp 5 year paper  (no wonder they did not include Tata Sons SGD bond into the list of comparables !!).

Still, this is a good change from the usual stuff they have been feeding us.

This will also be the first perpetual issued by an Indian company and let’s take a look at that list of Indian corp bonds in Singapore.

4 Tatas – 3 Down, 1 Up. (I think I repeated the Tata Comms)

They have done pretty well considering the lows they sunk to last year during the crash and we have some trading above 100 too !! Well done to those who had bought Tata Steel (ABJA)  at 82 cts !

We know that Indian companies are still too highly geared for comfort. But heck, India is the place to be for the next 20 years but perhaps not through the bond route. Errr, the currency and stock market would be a good idea.

But the spreads are undoubtedly generous and I think I know why they are coming to Singapore.

“Among other Asian economies, bankers said the S$ bond market is likely to see sustainable growth as the investors are more open and do not “overemphasize” on the issuer’s rating. ” http://www.livemint.com/Industry/vCQNHfwE2Trzuaxvjk5oYI/Singapore-bonds-present-new-funding-source-for-Indian-firms.html

A nice way of saying ….. S*ckers ! Not !

It is a private company and 7% is better than all those 9-10% they are paying in India for senior bonds. And that is why Singapore is the only country they have been able to raise money from so far but with those covenants which look more complicated than the hospital disclaimers for ICU, I think it will see demand and Tata finally gives something back to Singapore investors.

Good luck !