China Cinda sold a $3 billion dual-tranche offering early Friday morning, pricing its second bond in slightly less than a year thanks to lower funding costs.
Rated A3/A-/A, the Chinese bad debt management firm priced a $1.3 billion five-year note and $1.7 billion 10-year note at Treasuries plus 190 basis points and 240bp, which is 25bp tighter than their initial price guidance areas, according to a term sheet seen by FinanceAsia.
The cost of the latest Reg S/144A bond is much cheaper than its previous dual-tranche offering raised last May, when it also priced a five- and 10-year tranche at Treasuries plus 250bp and 310bp respectively.
Yields on 10-year Treasury notes dropped to 1.8769% on Thursday’s close from around 1.91%, creating an ideal window of opportunity for Asian issuers to tap the debt capital markets for cheap funding. On Friday morning, the yields were hovering around the 1.89% area, according to Bloomberg data.
This sparked a flurry of investment-grade transactions from Asian issuers in the last few days, including Malaysia’s $1.5 billion dual-tranche Islamic bond launched early Thursday morning.
The latest offering, issued by China Cinda Finance, is guaranteed by China Cinda Hong Kong Holdings and comes with credit enhancing instruments, including a keepwell agreement and an equity interest purchase undertaking agreement — both of which are provided by the parent company China Cinda Asset Management.
Proceeds from the Baa1/BBB+/A rated offering will be used for working capital, investments and other general corporate purposes, according to a source familiar with the matter.
China Cinda had a busy week with UBS helping the distressed asset manager raise $303 million by selling 490 million shares on Tuesday, utilising the strong stock market performance of the company.
China Cinda Asset Management was established by the Chinese government in 1999 as one of four asset management companies tasked with cleaning up problematic loans at major Chinese banks prior to their listing.
The firm has since diversified into investment and asset management. Its investment arm focuses on principal investment, private equity and real estate while financial services covers securities, leasing, trust operations and insurance.
Comparables
The nearest comparables for China Cinda’s latest five-year bond include its existing 4% bond maturing in May 2019 that was trading at a G-spread of 195bp, according to a source close to the deal.
Other comparables include Baa1/A- rated China Orient’s outstanding 3.75% note expiring in September 2019 and Baa1/BBB+/A rated China Huarong’s existing 4.5% paper maturing in January 2020 that were trading at a G-spread of 202bp and 207bp respectively.
As for the 10-year tranche, the nearest comparables are similar to the five-year offering. This includes China Cinda, China Orient and China Huarong’s outstanding bonds maturing in May 2024, September 2024 and January 2025 respectively, which were trading at a G-spread of 245bp, 255bp and 260bp.
As a result, fair value for the five- and 10-year notes will come at Treasuries plus 205bp and 255bp respectively, a Hong Kong-based credit analyst to FinanceAsia.
Even if the bonds don’t come with new issue premiums, they are nonetheless expected to perform well in secondary markets.
“With the low-yield environment forcing investors to look at higher-beta investment grade assets such as this, even without any new issue concession we expect the deal to be well-placed, allowing it to squeeze tighter in secondary,” the credit analyst added.
Listed on the Hong Kong Stock Exchange in December 2013, China Cinda’s current market capitalisation is HK$169 billion ($21.8 billion). The company is 67.8% owned by China’s Ministry of Finance, with the National Social Security Fund holding a further 8.2%.
BOC International, Bank of America Merrill Lynch, Credit Suisse, Cinda International Capital, CCB International and CITIC Securities International were the joint global coordinators and bookrunners of the transaction, which is issued under Cinda’s $3 billion medium-term note programme.
Other bookrunners include ABC International, Bank of China (Hong Kong), China Merchants Securities, DBS, Deutsche Bank, Haitong International, ICBC (Asia), Morgan Stanley, Standard Chartered, UBS, and Wing Lung Bank.
