IndianOil hardsells bonds in Asia & Europe, to raise $500 m
New Delhi   17-Jul-2013

After a lull of nearly two months in the US-dollar bond market, Indian Oil Corporation (IOC) will start on Wednesday roadshows in Asia and Europe to market its planned US-dollar denominated bonds. The public sector oil company is looking to raise about $500 million.

The company has hired Standard Chartered, Deutsche Bank and HSBC for sale of bond issues. Moody’s has assigned a provisional rating of Baa3 to the proposed notes by IndianOil. The ratings agency said it will assign a definitive rating upon closing of the bond issuance and a review of the final terms.

IndianOil would be able to garner enough interest for bonds, investment bankers said, but the sudden jump in US treasury yields could mean IndianOil will have to pay higher coupons than those companies that came out with dollar bond issues before May, when Indian companies managed to raise funds at record low rates.

The last issue by an Indian company in the US-dollar denominated bond market was by sub-investment grade rated Vedanta Resources, which raised $1.7 billion by issuing 5-year and 10-year bonds at 6% and 7.125%, respectively.

The US treasury markets turned volatile due to fears that the Federal Reserve may start to pare down its asset purchase programme if the US economy continues to stabilise. The Fed has been purchasing treasuries and mortgage-backed securities at a monthly run rate of $85 billion under its quantitative easing programme. If they slow the pace of these purchases, global liquidity may tighten and overseas equity and bond investors may turn cautious.

The US 10-year yield was trading around 2.53% on Tuesday. The benchmark yield climbed to 2.75% on July 5, the highest since August 2011, after reaching a 2013 low of 1.61% on May 1. Dollar denominated bonds are priced in reference to US treasuries and hence a rise in treasury yields means a higher cost of borrowing for issuers.