India tests Japan's Samurai loan limits

Indian borrowers are testing the depth of Japan's Samurai loan market, amid signs that a glut of deals and falling pricing are denting lenders' appetite.

State-owned National Hydroelectric Power Corp and Bajaj Finance, a private sector non-banking financial company, are the latest to jump onto the bandwagon with debut Samurai loans, tapping into cash-rich, yield-hungry Japanese banks.

However, some of those lenders are already suffering from fatigue for Indian credits.

“There are many Indian deals, so we have to prioritise,” said one banker at a Japanese regional lender.

Indian borrowers have raised a record US$2.21bn via 10 Samurai loans so far this year, eclipsing the US$1.6bn raised last year from five deals, according to Refinitiv LPC data.

The pipeline continues to grow. India’s largest power utility NTPC and Tata Capital Financial Services are also tapping Samurai loans.

NTPC is raising up to US$400m-equivalent after completing a US$300m-equivalent 10-year Samurai loan in April that attracted only one Japanese bank in general syndication. Tata Capital Financial Services launched a US$135m three-year loan last month.

Japanese Constraints

Bajaj Finance, which is targeting US$200m-equivalent as part of a US$575m three-year financing, could provide another test of appetite among Japanese banks. Roadshows held in Tokyo, Taipei and Singapore last week pointed to a lacklustre response to the Samurai portion, according to sources.

Initial indications suggest Bajaj Finance could mirror the result of Fullerton India Credit, another Indian NBFC that closed a US$250m-equivalent three-year term loan in October.

Far Eastern International Bank from Taiwan was the only one of 14 lenders joining that deal to participate in the yen tranche with a ¥1bn commitment. Japanese megabanks Mizuho Bank and MUFG swallowed the bulk of the US$100m-equivalent yen portion.

The poor response on the yen portion was in stark contrast to that on the US dollar piece and surprising given Fullerton India is an indirect, wholly-owned subsidiary of Singapore state fund Temasek Holdings.

India’s NBFCs are seeking alternative sources of funding after a string of defaults and credit scares triggered a liquidity crisis in the local market, beginning with missed payments from Infrastructure Leasing & Financial Services in September last year.

“Japanese investors are still very conservative. The fact that it [Fullerton India] is unrated externally, unlisted and privately owned did play a part in their lack of appetite,” said one Singapore-based banker about the response from Japanese banks.

Tightening Pricing

Tight pricing is another factor for the poor response. Fullerton India’s loan paid top-level all-in pricing of 107bp for the yen tranche based on an interest margin of 75bp over yen Libor, an early-bird fee of 10bp and a remaining average life of 2.83 years.

Aditya Birla Finance, the financial services unit of Indian conglomerate Aditya Birla Group, launched in early September its debut US$75m dual-currency three-year term loan. Sole MLAB Sumitomo Mitsui Banking Corp has still not closed the deal, which pays a top-level all-in of 95bp based on a margin of 80bp over yen Libor.

Bajaj Finance’s loan pays top-level all-in pricing of 85.1bp for yen commitments based on a margin of 65bp over yen Libor. Tata Capital Financial Services is offering top-level all-in pricing of 85bp for yen commitments based on a margin 70bp over yen Libor.

Although NHPC’s five-year Samurai loan pays the tightest top-level all-in of 78bp based on a margin of 75bp over yen Libor, it carries rarity value and a quasi-sovereign status. NHPC has not tapped the offshore loan market in 16 years.

“If the deal is semi-sovereign and is denominated in yen, pricing is still attractive compared to Japanese domestic loans with the same ratings,” a source at a Japanese regional bank said.

Bajaj Finance has obtained international ratings of BBB− from S&P, which should help attract Japanese banks to its borrowing.