Agricultural Bank of China’s raised its first $1.25 billion multi-tranche SEC-registered bond on Friday morning amid a mini taper tantrum.
Rated A1/A/A, China’s third biggest lender priced two $500 million bonds - a three- and five-year tenor, at Treasuries plus 115 basis points and 130bp respectively, 20bp tighter than their initial price guidance areas, according to a term sheet seen by FinanceAsia.
The issuance was made through the bank's New York arm and included a $250 million three-year floating-rate note, priced at three-month Libor plus 91bp.
The triple-tranche offering, which is part of ABC’s $10 billion medium-term notes programme, comes amid a mild bond market selloff which has driven yields to year-to-date highs over the last few days as aftershocks from the European bond rout rolled across the Atlantic.
The US Treasury market has felt the heat from the eurozone debt market turmoil in recent weeks, but has generally held up better than most European government bonds, which suffered a sharp reversal from the quantitative-easing inspired rally earlier this year.
The US Treasury 10-year bond yield touched a six-month high of 2.366% on May 11 but was hovering in the vicinity of 2.22% on May 15, according to Bloomberg data. German government bonds fell further, with the benchmark 10-year Bund yield dropping 2bp to 0.7%.
Additionally, the US economy softened in the first quarter and recent economic indicators suggest a weak second quarter as well. Data released last week by the US government showed the economy came to a near halt in the first three months of 2015, falling to nearly zero — a mere 0.2% annual growth rate for the January-March quarter.
The country’s labour market, meanwhile, continued to perk up and the unemployment rate is fast approaching the Federal Reserve Open Market Committee’s forecast of 5%, though it may dip below that figure before end-2015. This does little to dispel the uncertainty over when the Fed is expected to hike rates this year.
The retreat from US government bonds was more pronounced during the taper tantrum of 2013, when the US Fed announced it would begin scaling back its $70 billion a month bond-buying, or quantitative easing, programme, fixed income experts said.
“Although ABC's bond had quite a tight start to being with — coming at 10bp to 15bp tighter than its outstanding [notes] — it was open to US investors as oppose to previous deals that were just pure Reg S,” said a source familiar with the matter. “This help garner demand. The primary market also continues to be supportive and constructive.”
Comparables
The nearest comparables for ABC’s latest offering include ICBC New York branch’s outstanding three- and five-year bonds that were trading at a G-spread of around 120bp and 130bp respectively prior to pricing of the bond, according to a source close to the deal.
Other comparables include ABC’s existing Reg S-only bonds maturing in 2017 and 2018 that were trading around the 110bp to 115bp area, added the source.
The three- and five-year bonds have traded tighter to Treasuries plus 103bp and 115bp respectively, indicating continued strong flows for ABC's notes, according to Bloomberg bond data.
Headquartered in Beijing, ABC has total assets of Rmb16.8 trillion ($2.7 trillion) as of 31 March 2015.
ABCI, Bank of America Merrill Lynch, Citi and Wells Fargo were the joint bookrunners of the deal.
Proceeds will be used for general corporate purposes.
China Minsheng
Elsewhere, China Minsheng Bank sold a maiden $600 million three-year instrument in the Reg S-only market, obtaining a total order book over $3.5 billion from 124 accounts, according to a source familiar with the deal. Around 90% of the notes went to Asian investors.
Rated BBB by Standard & Poor’s, the offering priced at Treasuries plus 145bp, 20bp tighter than its initial price guidance area, and also at the tighter end of the final price guidance range, added the source.
Banks subscribed to 55% of the bond, followed by fund managers' 31%, sovereign wealth funds' 9%, insurance and pension funds at 4% and private banks with 1%.
Citi, CMBC Hong Kong, HSBC and UBS were the joint global coordinators and book runners of the Mingsheng transaction. Other book runners include Barclays, China Construction Bank (Asia), ABC, BoCom Hong Kong branch and Jefferies.
