India Bond House
In a domestic debt market roiled by rising yields and a high-profile default, AK Capital stood out with fresh ideas, including a market-leading smart city bond, and for helping restore confidence in non-bank financial institutions.
AK Capital’s signature deal of the year was a Rs20bn (US$282m) 10-year bond offering by Andhra Pradesh Capital Region Development Authority for the greenfield development of the capital Amaravati, which has an estimated project cost of Rs510bn and is due to be completed by 2023-24. The so-called “smart city” bond issue was 1.53 times subscribed within an hour on the electronic platform.
After assessing the cashflows from various projects, AK Capital suggested an optimal long-term structure with a five-year moratorium on principal payments. The bonds had an unconditional and irrevocable guarantee from the government of Andhra Pradesh, a trustee-administered escrow and payment mechanism, and adequate liquidity in the form of a debt service reserve account for six months, which helped earn ratings of AA– (structured obligation) from Brickwork Ratings and Acuite, and A+ (SO) from Crisil.
Investors, including a few large domestic mutual funds, took comfort from the visible construction work at Amaravati, the state guarantee, additional funding from the World Bank and an attractive yield of 10.32%. Other urban bodies, such as Pune Metropolitan Regional Development Authority, quickly followed.
AK Capital stood out with its efforts to expand the rupee bond market beyond the top tier of Indian issuers.
It brought 23 low-rated and unrated issuers to the debt capital market during IFR’s review period, helping them raise a total of Rs52.3bn. India Shelter, Sadhbhav Infrastructure Projects, Piramal Realty and Future Supply Chain Solution were among the issuers to have successfully raised bonds.
After the default of IL&FS caused panic and froze funding for non-banking financial companies, AK Capital helped HDFC’s Gruh Finance raise Rs11.5bn from commercial paper at 8.50%–8.55%, reopening the short-term debt market for good-quality NBFCs.
It also assisted companies with public bond issues, under the new fast-track process. It was a lead manager for 11 public issues, including a rare visit from Tata Capital, after nearly a decade’s absence.
It also adapted quickly to the use of the electronic bidding platform after the Indian regulator made it mandatory for issues of Rs2bn or more, participating in 48 issues, totalling over Rs292bn.
AK Capital also won the role of sole adviser for India’s first debt exchange-traded fund, which is designed to help state-owned companies meet their capital expenditure and funding requirements by leveraging their aggregate strength, while deepening the corporate bond market.