Herbert Smith Freehills has advised the joint lead managers and joint bookrunners on Tata Motors Limited’s US$750 million dual-tranche fixed rate bond offering. The deal represents the first bond offering by an Indian corporate to take advantage of the new 5% withholding tax on foreign currency bond issuances by Indian entities.
The Regulation S-only offering, which comprised a US$500 million 4.625% 5.5-year tranche and a US$250 million 5.75% 10-year tranche, took advantage of positive market conditions to effectively re-open the Asian G3 high-yield markets amidst global economic uncertainty. The notes were rated Ba2 (stable) by Moody’s and BB (positive) by Standard & Poor. The notes are listed on the Singapore Stock Exchange.
The offering received an exceptional order book, reflecting high levels of demand for quality Asian high-yield paper. Market reporters have shown that the 5.5-year tranche received an order book of US$4.2 billion from approximately 350 accounts, and the 10-year tranche received an order book of approximately US$350 million from more than 30 accounts across Asian and European investors.
The Herbert Smith Freehills team was led by Singapore partner Philip Lee, advising ANZ, Citi, Credit Suisse and Standard Chartered Bank. The team comprised senior associate Gareth Deiner, associates Nupur Kant and Jessica Loy, and trainee Emma Reid. Hong Kong partner Alexander Aitken, with assistance from trainee Truman Mak in Hong Kong, advised Citicorp as trustee for the bondholders.
With effect from 1 October, the withholding tax rate on bonds issued by Indian incorporated entities was reduced to 5% from 20% previously. Prior to 1 October, only Indian infrastructure companies were able to tap bond markets at an effective 5% rate of withholding.
Philip Lee commented:
“This is a truly meaningful reform which is likely to provide more Indian corporates with the opportunity to access international debt capital markets. Previously, the 20% withholding tax rate would add to the overall cost of capital as issuers would have to factor in the obligation to gross up investors under the terms of the notes. This made international currency debt capital markets prohibitively expensive for Indian issuers who did not have substantial assets and cash flows outside of India on which they could rely to meet their obligations to bondholders.”
Other significant aspects of the deal include the covenant light nature of these bonds for a high yield credit, a trend which we are increasingly seeing in this part of the world. The incredibly huge demand for this bond also demonstrates the depth of the Reg S market in Asia and Europe for high quality Indian high-yield issuers, another trend which follows from, among others, Oil India’s record-breaking US$1 billion dual-tranche offering earlier this year, on which Herbert Smith Freehills acted as international counsel to the joint lead managers.
Last year, Herbert Smith Freehills advised on the land-mark S$350 million ‘Lion City’ bond issuance and separately the unrated US$300 million issuance earlier this year by Tata Motors’ wholly-owned Singapore subsidiary, TML Holdings.
Source: www.herbertsmithfreehills.com
