Even as policy paralysis dented Indian loan market volumes, one bank consistently delivered smart solutions for issuers. For executing the year’s biggest deals and constantly providing effective solutions for the country’s local borrowers, SBI Capital Markets is IFR Asia’s India Loan House of the Year.
SBI Caps ignored a disappointing backdrop and harnessed its aggressive streak to earn a 43% share of India’s competitively banked loan market, while others were struggling to come to terms with a market where volumes dropped by almost half to US$45.8bn during the period under review.
India’s loan market may have had a difficult year as deteriorating policy-making machinery and governance issues damaged sentiment and delayed deals, but SBI Caps forged ahead with innovative and – where necessary – aggressive structures to raise money for its clients.
SBI Caps not only maintained its share of the shrinking rupee market in a high-interest rate environment but also expanded into the US dollar syndication market with US$6bn worth of deals.
The bank played to its core strengths of project finance, restructuring and refinancing. It was the country’s premier project finance lender and arranger during the review period, as well as the top lender overall.
SBI Caps showed its confidence by bringing large project finance deals, despite tight liquidity in the market, for GSPL India Transco and GSPL India Gasnet. The two related deals, totalling US$1.92bn-equivalent, were launched between December 2011 to April 2012 and faced an added challenge as the country’s last pipeline project was financed five years ago.
Moreover, as these projects will post losses in their first few years of operation, there was increased resistance from lenders who were also wary of the financing’s 14-year tenor.
A subordinated debt tranche was carved out partly to meet the project’s initial cash deficit, while the sponsors were made responsible for ensuring the pipelines generate revenues to meet a debt service coverage ratio of 1.
Cross-support structures for both pipelines were also made available, while pricing was a fixed rate that offered a spread of 75bp over each lender’s base rate, giving the banks a buffer should their base rates change.
Despite achieving the lowest pricing on any loan during the review period, the facility was more than 40% oversubscribed and syndication closed in an unusually short 60–80 days. In all, 12 to 14 lenders took part in the deals, which were completed without the support of parent SBI.
SBI Caps also reintroduced standby letter of credit-backed (SBLC) financings to the Indian market, providing issuers with greater flexibility and cost-savings in a win-win combination.
The bank arranged SBLC financings that helped companies, including fast-expanding Videocon Industries (US$2.65bn), raise offshore funds at cost savings of 150bp–200bp over straight US-dollar loans.
Cleverly, the structure SBI Caps employed on the Videocon deal spread the risks so that Indian lenders took the project finance risks on Videocon’s Mozambique oil and gas fields, while offshore lenders ended up taking exposure to the Indian lenders issuing the SBLCs.
In contrast to the usual three-year tenor, the SBLCs to Videocon were issued for 15 years so that they can be used on a rolling basis to raise and refinance shorter-tenor offshore loans.
This structure opened doors for the issuer, while allowing local banks to build assets outside India.
SBI Caps added plenty more landmark advisory mandates during the review period beyond the primary syndication market, such as advising the government on the debt of power distribution companies, restructuring national carrier Air India and advising the government on setting up infrastructure debt funds. In these, and many other cases, the firm proved its ability to deliver solutions, and in size.
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