Li Kashing’s Hutchison Whampoa struck with an opportunistic $1 billion tap early on Wednesday morning, re-opening its $500 million bonds due 2017 and $1 billion bonds due 2022, which priced mid-January.
Hutch tapped the market for another $500 million for each tranche, bringing the total deal size up to $2.5 billion. It is not clear why it has decided to raise such a big sum so early in the year, but Hutch has a reputation for opportunistic funding — so it may have decided simply to take money off the table while the markets are still open. It said that the proceeds will be used to refinance existing debt and for general corporate purposes.
The fact that it is tapping the market so soon after the original deal seems to suggest it was hoping to raise more originally. However, waiting for another window worked out for the company, as it managed to achieve a lower yield on both tranches. Compared to the original deal, investors were much more receptive this time, putting in orders for $5.3 billion, nearly double compared to the mid-January trade.
“When Hutch first came out, they printed the deal they could print,” said one person familiar with the deal. “When we saw the response to the Wharf transaction, we saw a lot of resurgent demand from investors and Hutch decided to go ahead to lock in low rates,” he added.
The leads — Goldman Sachs and HSBC — indicated that the maximum size was $500 million for each tranche. They went out with initial guidance of Treasuries plus 265bp for the Hutch 2017s, revised it to Treasuries plus 250bp to 255bp and priced at the tight end. The initial guidance for the 10-year tranche was Treasuries plus 300bp. This was revised to Treasuries plus 285bp/290bp and priced at the tight end. Back in mid-January, Hutch had issued both tranches at Treasuries plus 275bp.
On a yield basis, the company achieved savings across both tranches thanks to a rally in US Treasury yields. Since mid-January, five-year US Treasuries yields have rallied about 15bp. As a result, Hutch paid a lower yield for its tap — 3.216% for the Hutch 2017s, about 40bp less than the original deal, and 4.659% for the Hutch 2022s, or about 6bp less.
“The tap of the 2017s made perfect sense,” said one rival banker. “The bonds were trading very well and there was lots of follow-on demand for that issue. The tap of the 22s was bold. The bonds had underperformed on heavy original allocations, trading wider, so it was very punchy to tap that tranche.”
The Hutch 2017s were at Treasuries plus 230bp before the deal was announced and widened to 240bp before coming back in to 238bp/236bp on Wednesday. Meanwhile, the Hutch 2022s were at Treasuries plus 270bp and widened to Treasuries plus 280bp after the deal was announced, but tightened back to Treasuries plus 277bp/273bp.
J.P. Morgan was also on the original deal alongside Goldman Sachs and HSBC, but according to one person familiar with the matter, due to the smaller deal size, the company decided to go with two banks.
For the five-year bond, Asian investors were allocated 58%, US investors 26% and European 16%. Funds were allocated 60%, banks 20%, insurers, pension funds and central banks 15%, and private banks 5%. For the 10-year bond, Asia investors were allocated 53%, US investors 30% and European investors 17%. Funds were allocated 70%, insurers, pension funds and central banks 15%, banks 10% and private banks 5%.
