Asia’s leading oil refiner, Sinopec, completed the largest offshore bond of the year from Asia ex-Japan on Monday, raising $3 billion from a four-tranche offering.
Sinopec likes setting records, having last tapped the bond markets almost one year ago with a $6.4 billion five-tranche bond that represents Asia’s second largest corporate bond on record behind Alibaba’s mammoth $8 billion deal.
Its new Aa3/A+ rated deal will also go some way to bolstering the league tables since $15.3 billion of overall G3 issuance is only half the $30 billion Asian issuers had raised by this time last year according to Dealogic figures.
More importantly, Sinopec’s Reg S/144a deal marks a show of confidence for the energy sector, although as brokers pointed out, its downstream operations make it the most resilient Chinese oil play and that plus point is already reflected in the trading levels of its secondary market curve.
The Aa3/A+ rated group initially announced a three-year, five-year and 10-year deal before adding a 30-year tranche on the back of reverse demand.
Prior to the addition of a 30-year note, demand had exceeded $3 billion by early afternoon Asian time and eventually built up $5.4 billion by the time final guidance was released.
The final order book closed at the $4.66 billion level with a split of $1.7 billion for the three-year, $1.5 billion for the five-year, $1 billion for the 10-year and $460 million for the 30-year.
This was not quite as impressive as the $8.8 billion order book its dollar tranches achieved last year, but the new transaction has come in a more difficult environment.
A $1 billion three-year bond was priced 99.752% on a coupon of 2.125% to yield 2.211% or 120bp over Treasuries. Final guidance had been set at 5bp either side of 125bp over Treasuries down from 135bp over.
A total of 120 investors participated with a split, which saw 52% placed in Asia, 15% in EMEA and 33% in the US. By investor type, corporates took 23%, fund managers 24%, bank treasuries 31%, agencies 17%, insurers and pension funds 3% and private banks 2%.
A $900 million five-year bond was priced at 99.815% on a coupon of 2.75% to yield 2.79% or 142.5bp over Treasuries. Final guidance had been at 2.5bp either side of 145bp over, down from initial guidance at 155bp over.
This tranche attracted 95 investors of which 68% were from Asia, 16% from EMEA and 16% from the US. By investor type, bank treasuries took 53%, fund managers 30%, agencies 15%, insurers and pension funds 1% and private banks 1%.
A $700 million 10-year tranche was originally marketed at 180bp over, before being tightened to 5bp each side of 175bp. Pricing was fixed at 99.166% on a coupon of 3.5% to yield 3.6% or 170bp over.
Here there were 85 investors of which 44% were from the US, 41% from EMEA and 15% from Asia. By investor type agencies took 26%, bank treasuries 10%, funds 59%, insurers and pension funds 4% and private banks 1%.
The $400 million 30-year tranche was priced at par on a coupon of 4.25% to yield 153.5bp over Treasuries.
This tranche had 21 investors with 93% from Asia, 6% from the US and 1% from EMEA. Insurers and pension funds took 78% and fund managers 22%.
All four tranches were guaranteed by the group’s onshore parent, China Petrochemical Corp and should be EMBI-eligible.
Fair value
Fair value calculations are fairly straightforward given Sinopec has a well-established curve.
Its 2.75% April 2019 bond was trading at 138bp over three-year Treasuries and 120bp over two-year Treasuries on Monday, equating to a Z-spread of 112bp.
Its 2.5% April 2020 bond was trading at 124bp over, or a Z-spread of 138bp. Meanwhile, its 3.25% April 2025 bond was trading 160bp over, or a Z-spread of 182bp.
In a research note prior to pricing, Mitsubishi estimated fair value for the three-year tranche at 121bp over Treasuries, flat to the existing curve.
It estimated fair value for the five-year at 148bp, or 15bp over Sinopec’s 2020 bond on the basis of a 30bp curve between its 2020 and 2022 bonds. This tranche has, therefore, been priced more generously than the three-year, offering a 5.5bp new issue premium.
Where the 10-year bond is concerned, Mitsubishi argued for fair value at 171bp, or a 5bp pick up to secondary levels on the basis of a curve worth 15bp between its existing 2022 and 2025 bonds. Final pricing on the 10-year, therefore, offered a 1bp pick-up.
Analysts’ views
In a recent research report, Credit Suisse commended the group’s recent year-end results. "Despite a further dip in oil price to $43/barrel, Sinopec's refining business swung from loss-making to Rmb6 billion in profit, which was significantly better than our expectation," analysts wrote.
However, Morgan Stanley has argued that the recent oil price rally is being largely fuelled by hedge funds and is not supported by fundamentals.
Sinopec plans to use the proceeds to refinance existing debt.
Joint global coordinators for the latest deal were: Citi, Goldman Sachs, Bank of China, HSBC and JP Morgan, while ABC International, Bank of America Merrill Lynch, CCB International, China Merchants Securities, DBS, ICBC International, Mizuho Securities, Societe Generale, Standard Chartered and UBS were joint bookrunners.
This deal has been updated since first publication with deal statistics.
