China Shenhua will begin an investor roadshow on Thursday, having mandated global banks for a potential maiden dollar-denominated bond in the coming weeks.
The Chinese coal producer — the largest in the world — has mandated Citi, HSBC and JP Morgan as joint global coordinators and bookrunners of the proposed deal, according to a source familiar with the matter. The roadshow will take place in Hong Kong, Singapore and London.
Other joint bookrunners include Deutsche Bank, Goldman Sachs, CICC Hong Kong Securities, ICBC International and BOCOM International, added the source.
China Shenhua’s board has approved an issuance size of up to $1.5 billion for its proposed bond with tenors from three to 10 years, according to a filing to the Hong Kong Stock Exchange.
The company is the world's largest public listed coal supplier, as measured by sales volume of 514.8 million tonnes in 2013, of which 318.1 million tonnes were self-produced.
It had coal reserves of about 8.572 billion tonnes as of 30 June 2014, based on the JORC Code, an organisation that provides information on the mineral and ore industry.
The issuer’s potential bond issuance, which has an expected rating of A1/A+/A+, comes amid increasing pessimism towards the commodities sector, indicating that the transaction could face headwinds.
For example, thermal coal prices tumbled 25% last year and hit a five-year low at around $62 per tonne on Wednesday, according to data from the World Bank. Aside from declining coal prices, crude oil is at its lowest levels since 2009, falling below its coveted $50 per barrel on Wednesday.
Nonetheless, rating agencies — which have given the issuer a standalone rating of Aa3/AA-/A+ — are not concerned, citing that China Shenhua’s large portfolio of thermal power generation plants will provide a natural hedge against volatile coal prices.
“[This will] result in profit margins which are more stable than those of other rated coal mining peers,” said Kai Hu, a Moody's senior credit officer, adding that the company has a total installed capacity of 41,798 megawatts at end-2013 and is ranked the sixth largest power generator in China.
The proceeds of the proposed bond — which is supported by a keepwell deed and deed of equity interest purchase undertaking by China Shenhua — will be used for loan repayment of the company’s overseas subsidiaries, approved overseas projects and general working capital purposes, said a source close to the deal.
According to the keepwell deed, China Shenhua ensures to maintain a minimum ownership of 100% in China Shenhua Overseas Capital (the entity that is issuing the note) and Shenhua Hong Kong (the guarantor of the potential bond).
The keepwell deed also ensures that Shenhua Hong Kong has a consolidated net worth of at least $50 million while China Shenhua Overseas Capital has a consolidated net worth of at least $1, according to Moody’s in a note on Wednesday.
China Shenhua is 73% owned by Shenhua Group and listed on the Hong Kong Stock Exchange and Shanghai Stock Exchange in 2005 and 2007.
Its parent Shenhua Group is one of the 53 key enterprises directly owned and administered by the State-owned Assets Supervision and Administration Commission of the State Council. It was established by the State Council in 1995 with the aim to build a strategic energy base for China.
