Gail To Raise .16b At 150bps Over Libor

The Gas Authority of India (GAIL) is raising an eight-year external currency borrowing of 3.16 billion Japanese yen (equivalent to $25 million) at 150 basis points above the yen Libor which is presently around 0.54 per cent.

The GAIL issue will set a benchmark as it is a float with the longest tenure to be raised after the southeast Asian crisis. National Thermal Power Corporation recently raised funds through an ECB at 75 basis points over US Libor for a maturity of three and half years.

Officials at the State Bank of India (SBI), which received the GAIL mandate, said the issues pricing would be nearly double the rate at which GAIL might have been able to raise the funds prior to the crisis.

 

At that time, GAIL being a highly rated company would have been able to raise funds at around 80 basis points above the Libor.

GAIL is raising the ECB following a retirement of an earlier ECB. The paper will have a maturity of eight years and repayment will start after six months. The funds are being raised to finance imports as well as other capital requirements.

While the GAIL issue may be a yen-denominated float, investment bankers said the pricing is applicable to dollar-denominated issues also as it is the spreads over Libor that matter.

Following the southeast Asian crisis which had repercussions for emerging markets globally, international interest in bond issues from these countries deteriorated in the primary and secondary market.

In this scenario, investment bankers felt the GAIL issue was well-priced and would be subscribed.

A few months ago, market conditions were favourable and Indian ECBs were well subscribed. At that point, leading corporates were raising short-term paper at around 30 basis points above the Libor and long-term paper at 70 to 80 basis points above the Libor.

Investment bankers said with the crisis easing, the demand for such paper was picking up. However, in future ECBs may be issued primarily by large corporates. Moreover, only larger size issues may come to the market.

One ECB shortly expected in the market is that of the Powergrid Corporation, which is planning to raise $ 50 million for seven years.

The corporation has invited bids on the basis of which the pricing will be finalised.