After a drought in August, the flurry of issuance seen towards the end of last week harkened back to the days when several deals priced in a single day. On Thursday night, three borrowers - Kexim, National Savings Bank and China Orient Asset Management - seized a window in the market to take money off the table.
Russia and South Africa, as well as US telecoms group Verizon, also printed jumbo bonds last week and borrowers were hurrying to close deals before the upcoming Federal Open Market Committee meeting on September 17 and 18.
Kexim tested investor demand for floating rate notes while National Savings Bank and China Orient Asset Management both closed debut bonds, with the former pointing towards a revival in demand for emerging market bonds.
The uptick proves there is cash for deals at the right price and for the right name. “Institutional accounts are still willing to put money to work, it is the retail funds that are more fickle,” said one syndicate banker. “A number of institutional accounts feel that US Treasuries have risen to the point that the risk is factored in,” he added.
However, investors are still averse to buying long-duration bonds, as reflected by last week's deals, with tenors not stretching beyond five years.
Kexim dual-trancher
The biggest of the three was Kexim, which tested investor demand for a rare floating rate note that was part of its dual-tranche $1 billion offering.
Kexim, a South Korean policy bank, issued a $500 million three-year floating rate note and a $500 million five-year bond, launching hot on the heels of the Korean sovereign's $1 billion bond in early September and Korea Development Bank's $750 million bond, which closed last week.
"We saw strong demand from investors looking to reduce their risk from rising interest rates and the Fed tapering," Sung-hwan Choi, chief financial officer of Kexim, told FinanceAsia. “We saw solid demand from central banks and sovereign wealth funds, which were allocated 40% of the bonds,” he added.
The floater priced at three-month Libor plus 85bp compared to initial guidance at the area of Libor plus 95bp and five-year bond priced at Treasuries plus 127.5bp.
Floating rate notes are a small part of the fixed-income world, and rare in Asia, although they are more common in the US. However, amid uncertainty over rising rates, more borrowers could wade into the floating rate space. For example, Japanese bank Sumitomo priced a floating-rate note last week.
The SEC-registered deal attracted $4.8 billion worth of demand. The three-year floater saw $2.1 billion of demand. Fund managers took up 43%, banks and private banks 16% and companies and other investors 1%. US investors were allocated 50%, Asian investors 31% and European investors 19%.
In secondary, the five-year tranche was quoted around reoffer in secondary while the floating rate notes were slightly tighter.
With the $1 billion bond closed, that will conclude most of the policy bank's funding needs in the dollar market. “This issue will conclude our benchmark fund-raising exercises in the dollar market this year. We might issue small dollar deals, or in niche currencies,” Choi added.
Deutsche Bank, Bank of America Merrill Lynch, Citi, Goldman Sachs, HSBC and Mizuho were joint bookrunners.
National Savings Bank and China Orient Asset Management
National Savings Bank, which is wholly owned by the Sri Lankan government, also closed its debut bond late last week. The $750 million bond was the first benchmark size offering by a high-yield issuer in the past few months and also the largest bond out of Sri Lanka, away from the sovereign.
The initial guidance was at the area of 9.25% and the bonds priced to yield 8.875%. The five-year bond attracted $2.3 billion of demand. Fund managers were allocated 88%, banks and private banks 10%, insurance and other investors 2%.
The closest comparable was the Sri Lanka 2020s, which were yielding 7.6%. According to one syndicate banker, the fair value of a new five-year Sri Lanka bond is mid 7.5%, which meant National Savings Back priced in the range of low 100bp back of the sovereign. This was tight compared to Development Bank of Mongolia, which is guaranteed by the Mongolian sovereign and trades about 200bp back of the sovereign bond.
China Orient Asset Management, on the other hand, printed a sizeable debut trade in the Reg-S market. That deal was upsized from $300 million to $600 million after attracting $3.7 billion worth of orders.
Barclays, Citi and HSBC were joint bookrunners for National Savings Bank. BOCI, Credit Suisse and Standard Chartered were joint global coordinators and bookrunners for China Orient Asset Management. ABC International and UBS were joint bookrunners.
