The Asian primary bond markets sprang back to life on Thursday with a clutch of dollar deals from Chinese investment credits, including a $1.8 billion offering from China Huarong Asset Management and a $500 million issue by China State Construction Engineering Corp (CSCEC).
The new issue pipeline had been building up a head of steam all week after borrowers were absent from the market on Monday due to US non farm payroll-induced volatility, followed by two days of public holidays across Singapore and Malaysia on Tuesday, then the US on Wednesday.
When they came on Thursday, the two deals for Huarong and CSCEC both launched into a much stronger market for investment grade credit. Sales desks reported spread tightening of about 2bp to 4bp across the board over the course of the Asian trading day, following on from 2bp of tightening on Wednesday.
Both Huarong and CSCEC attracted strong order books, with the former closing at $10.5 billion and the latter at $2.4 billion.
Brokers also thought both deals offered value despite their tight pricing thanks to the momentum currently propelling the secondary market. One broker noted that Huarong's secondary market levels remained unchanged despite the announcement of the new paper coming onto the market.
CSCEC makes its debut
The A2/A/A rated issue was the first of the two to price, executing a $500 million five-year Reg S issue. Bankers said the debut issuer decided to cap the deal size because it did not need additional funds even though the size of the order book meant it could have scaled up if it wanted to.
Initial price guidance was set at 175bp over Treasuries before being moved in to 5bp either side of 150bp. Final pricing was fixed at 98.954% on a coupon of 2.95% to yield 3.178% or 145bp over Treasuries.
The issuance vehicle was called CSCEC (Cayman) I Ltd, with a guarantee by China State Construction Engineering Corp.
Distribution saw 77% placed in Asia and 23% to EMEA for a total of 139 investors. By investor type fund managers took 49%, banks 37%, insurers 7%, private banks 2% and others 5%.
Syndicate bankers calculated that the deal priced flat to its fair value.
The nearest comparable is A2/A/A rated Shanghai Electric's $600 million 3% August 2019 bond. This was trading Thursday at 135bp over Treasuries and on a G-spread of 165bp.
Bankers estimated the curve between an August 2019 bond and November 2020 bond was worth about 2bp, which means CSCEC has priced about 22bp through Shanghai Electric even though they share the same rating.
A second comparable is China State Construction, whose Baa1/BBB+/BBB+ rated $800 million 4.25% May 2019 bond was bid on Thursday at 152bp over Treasuries, or on a G-spread of 189bp.
"The strong non farm payroll number pushed Treasuries out and that has attracted spread buyers because they are getting a higher overall yield," one banker commented.
Joint global co-ordinators were Goldman Sachs, HSBC, UBS and BOCI with Citi, JP Morgan and BNP Paribas as joint leads.
China Huarong sees double
The Chinese distressed asset management company priced much later than expected during the middle of the US trading day on Thursday after its large order book made allocations difficult.
The Baa1/BBB+/A- rated transaction marked Huarong's second entry to the dollar bond market this year following a deal in January, which had exactly the same structure with three-, five- and 10-year tranches. This offering also attracted a large $15.5 billion order book.
The new deal was issued in the name of Huarong Finance II, with a guarantee from China Huarong International Holdings and a keepwell deed from China Huarong Asset Management.
The three-year tranche was sized at $500 million with initial guidance at 205bp over Treasuries and an order book of $3.5 billion. This was then narrowed to between 175bp and 180bp over before being priced at the tight end on an order book of $2.5 billion.
Final pricing was fixed at 99.732% on a coupon of 2.875% to yield 2.969% or 175bp over Treasuries.
Asia took 91% and Europe 9% with 65% distributed to banks, 26% to fund managers, 6% to private banking clients and 3% to sovereign wealth funds.
Huarong's existing 3.5% January 2018 bond was bid on a G-spread of 175bp on Thursday. This means the new deal has priced slightly through the curve given the 10-month maturity extension.
The new five-year tranche was also sized at $500 million with initial guidance at 245bp over Treasuries at which point the order book stood at $6.5 billion. This was tightened to between 215bp and 220bp over and closed with an order book around the $5 billion mark.
Final pricing was fixed at 99.455% on a coupon of 3.75% to yield 3.871% or 215bp over Treasuries.
Similar to the three-year, 91% went to Asia and 9% to Europe. By investor type banks took 37%, fund managers and insurers 59% and private banking investors the remaining 4%.
In the secondary market, Huarong's 4.5% January 2020 bond was bid on a G-spread of 213bp over on Thursday. As a result, the new five-year has priced flat to the old five-year.
Finally, the 10-year tranche was the largest of the three after being sized at $800 million. Initial guidance had been pitched at 300bp over Treasuries attracting an order book of $4.5 billion. This was then narrowed to 270bp-275bp over and closed with an order book of $3 billion.
Pricing was fixed at 99.759% on a coupon of 5% to yield 5.031% or 270bp over Treasuries.
By geography, 93% went to Asia and 7% to Europe. By investor type 36% went to banks, 57% to fund managers and insurers, 5% to private banks and 2% to sovereign wealth funds.
The group's existing 5.5% 2025 bond was bid on a G-spread of 267bp over on Thursday, which means the new bond has offered investors no pick up either.
In a sales note, BOCI argued that the new deal still had some upside left in it suggesting that it "looks decent value even at much tighter final guidance."
Joint global co-ordinators for the deal were Credit Suisse, Standard Chartered, Wing Lung Bank and Huarong International.
A very long list of joint bookrunners encompassed a fair number of the deal's investors and comprised ABC International, CCB International, DBS Bank, Deutsche Bank, Goldman Sachs, Haitong International, Hani Securities, HSBC, ICBC Asia, Shandong Pudong Development Bank Hong Kong and Wells Fargo Securities.
