Aberdeen, AIA, Pimco may have bought UltraTech’s dollar bonds

Aberdeen, AIA, Pimco may have bought UltraTech’s dollar bonds

MUMBAI: Aberdeen Standard Investments, AIA Group and Pimco are among global investors that may have bought Indian cement maker UltraTech’s maiden dollar bonds offering 167.5 basis points higher yields than US Treasury bonds.

The bonds initially received bids of over seven times the target of $400 million. The number of bids dropped to four times after the final bond price became at least 42 basis points higher than the initial price guidance.

One basis point is 0.01%.

Goldman Sachs, Bluebay and Citadel are likely among other investors subscribing to the 10-year papers offered to international investors including those in the US, market insiders said.

Individual investors could not be contacted immediately for comments.

The bond sale assumed significance as these bonds are marked as ‘sustainable’ or ESG (environmental, social and governance) in market parlance, raised by a cement company that emits carbon pollutants at the time of manufacturing.

The company has incorporated a clause of interest step-up in the investor terms. If it fails to achieve the target for environmental sustainability during the next nine years, an additional 25 basis points will be added to the coupon and be paid to investors.

Like its other peers, UltraTech faces high environmental risk as a cement producer “due to costs associated with air and carbon regulation compliance”. Such risk is said to be mitigated by UltraTech’s commitment to environmental management through various initiatives.

JP Morgan and HSBC are helping the company to raise the money.

The proceeds from the issuance will be used to refinance existing rupee debt with the remainder reserved for regular ongoing capital expenditure requirements and general corporate purposes, people aware of the matter said.

“By repaying local bank loans, it will create space for more local loans,” said a senior executive involved in the fund-raising exercise. “The company is seeking to expand in coming quarters with the economy showing signs of recovery.”

Moody’s Investors Service graded UltraTech’s dollar-denominated bonds with Baa3, the lowest rank in the investment grade category, but with negative outlook. “The negative outlook reflects the fact that UltraTech’s operations are closely tied to India’s economy, and thus its outlook mirrors that of the sovereign,” Moody’s said in a report.

UltraTech maintains conservative financial policies and has historically funded its acquisitions with a mix of debt and equity, it said. Environmental considerations are material to today’s rating action.

Meanwhile, India Green Power, an overseas arm of ReNew Power received bids worth about $1.6 billion for its $460-million bond issue. Those bonds are expected to yield around 4% at the close of the deal, a quarter percentage point tighter than initial guidance.

EastSpring, Primus, and China Life Franklin Asset Management are said to be among investors showing interest to own those bonds.

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