The Asian bond frenzy reached a new height last night as investors welcomed a debut frontier credit -- the Development Bank of Mongolia -- which priced a $580 million five-year bond. More than 300 investors stampeded into the deal, putting in orders of $6.25 billion. The initial guidance was 6% to 6.25%, which was later revised to 5.75% to 6% and the bonds priced at the tight end of that. Deutsche Bank, HSBC and ING were joint bookrunners.
Development Bank of Mongolia was set up by the Mongolian sovereign to fund infrastructure projects, including railroads, roads and infrastructure for housing projects, energy and industrial development. It is wholly-owned by the government and is the only policy bank in Mongolia
Similar to how Korea issues in the offshore market through its policy banks (Korea Development Bank and Export-Import Bank of Korea), Development Bank of Mongolia is expected to be the sovereign’s main offshore funding vehicle. The bank's advisors include officials that work for KDB.
However, unlike KDB and Kexim’s dollar bonds, which do not have explicit government guarantees, Development Bank of Mongolia’s bonds are fully guaranteed by the ministry of finance on behalf of the government of Mongolia and rank on par with other senior unsecured debt issuance from the Mongolian government.
This suggests that the much vaunted Mongolian sovereign offshore bond that bankers have been salivating over for years, is not likely to happen anytime soon. “We won’t see a Mongolian sovereign bond. This is it,” said one banker. “Any budget shortfall will be funded by the ministry of finance onshore and their infrastructure needs will be funded by Development Bank of Mongolia offshore,” he added.
The deal attracted well-balanced demand with Asian investors allocated 32%, European investors 36% and offshore US investors scooping up 32%. By investor type, fund managers were allocated 85%, private banks 12% and “others" 3%.
The bonds are rated B1 by Moody’s and BB- by S&P, which is the same rating as the Mongolian sovereign. In its report, S&P said it has “equalised the issue rating with the sovereign credit rating on Mongolia because of the strength of the sovereign guarantee and ownership, and the bank's policy role.”
The bonds were drawn down from Development Bank of Mongolia's $600 million medium-term note programme. The bank had already closed a $20 million private placement last year, so there was only $580 million remaining and the bank used it all up. With this deal, it is said to have concluded its funding needs for the year.
Hot on the heels of the policy bank is another credit from Mongolia. Mongolia Mining Corp has mandated Bank of America Merrill Lynch, ING and J.P. Morgan as joint bookrunners for a potential dollar bond. Standard Bank and Standard Chartered Bank are joint lead managers. A series of investor meetings in Asia, Europe and the US will start today.
Also in the market last night was DBS Bank, which was due to price a lower tier-2 bond early this morning. The 10.5-year bonds are callable after five-and-a-half years. The initial guidance was Treasuries plus 270bp and this was revised to a final guidance of Treasuries plus 257.5bp to 267.5bp. DBS, Bank of America Merrill Lynch and Goldman Sachs are joint bookrunners.
Agile leaps ahead of crowd
Investors are also returning to the Chinese property sector, which until recently was shut with bonds trading at battered down levels. First out was Agile Property, which priced a $700 million five-year bond on Tuesday night amid exuberant demand of $6.25 billion.
This is the first rated Chinese property developer to come to market in a long time and it ticked the right boxes as it was a name investors were familiar with. The bonds are rated Ba2 by Moody’s and BB by S&P, making Agile Property one of the stronger Chinese property companies.
The bonds priced at a yield of 9.9%, at the tight end of the 9.9% to 10% final guidance. The initial guidance was released at 10.25%. The company was targeting a $500 million deal, but thanks to the robust order book, it was upsized to $700 million.
The closest comparable was the company's own outstanding April 2017s, which were trading at 9.8%, so Agile Property’s new March 2017s offered a new issue premium of about 10bp. The bonds traded higher in the secondary market, which augers well for further issuance from the sector. At the end of yesterday's session they were quoted at 101 after trading as high as 101.5 intraday. This compares with a reoffer price of 99.9.
Private banks were the biggest buyers, accounting for half of the allocations, and there was also a 0.35% private banking rebate. Fund managers took 36%, banks 10% and insurers and corporations 4%. HSBC, Standard Chartered and UBS were joint bookrunners.
Shortly after Agile Property printed, another Chinese real estate company, KWG Property, kicked off roadshows – arranged by Barclays Capital, HSBC and Standard Chartered -- in Singapore and Hong Kong for an upcoming dollar bond. And there are also rumours that Country Garden may tap the dollar bond market.
Finally, earlier this week, Thai lender Siam Commercial Bank priced a $600 million five-and-a-half year bond -- a rare deal out of Thailand. The notes priced at 252.5bp over five-year Treasuries, which was 17.5bp inside the initial guidance of Treasuries plus 270bp and also about 6bp inside of the issuer's secondary bonds. The coupon was fixed at 3.375% and the notes were reoffered at 99.811 to yield 3.413%.
Asian investors were allocated 62%, European investors 26% and US accounts 12%. Similar to other trades done this week, the bonds traded tighter at Treasuries plus 249bp/245bp on Wednesday morning. Barclays Capital and Citi were joint bookrunners.
