China Huarong Asset Management, the country's largest bad-loan manager, and electronic maker Midea, launched benchmark Reg-S dollar-denominated bond offerings on Thursday, joining a slew of Chinese credits that have tapped the market this week.
Their fund raising exercises nipped into the market ahead of a speech on Friday by US Federal Reserve Governor Janet Yellen that may signal rising rates.
Huarong’s $2.5 billion deal in particularly proved to be wildly popular, building up a peak order book of $13.5 billion. This was not that surprising given the group went out with unusually attractive price guidance and even though it subsequently narrowed this down quite aggressively, the deal still offered investors the kind of new issue premium other recent Chinese issuers have been loathe to offer.
But the transaction needed it after a week of heavy issuance and softening of Asian credit markets on Thursday. The previous day’s dual-tranche deal for China Development Bank, for example, had widened 2bp to 3bp by Asia’s close.
The syndicate initially marketed A3/A-A rated Huarong’s three-year and five-year tranches at 210bp and 230bp over Treasuries. Guidance was then tightened on the three-year to 2.5bp each side of 180bp over Treasuries and on the five-year to between 200bp and 205bp over.
The 10-year tranche was first marketed at 320bp over Treasuries, before being tightened to between 290bp and 295bp over.
Final pricing for a $700 million June 2019 bond was fixed at 99.857% on a coupon of 2.75% to yield 2.8% or 177.5bp over Treasuries according to a term sheet seen by FinanceAsia.
A $900 million June 2021 note was priced at 99.507% on a coupon of 3.25% to yield 3.358% or 200bp over Treasuries.
A $900 million June 2026 bond was priced at 99.147% on a coupon of 4.625% to yield 4.733% or 290bp over.
In terms of comparables, the company has outstanding bonds one year shorter than each respective tranche.
Its outstanding 2.875% 2018 bond and 3.75% 2020 bond were trading on respective Z-spreads of 200bp and 235bp on Thursday, while its 5% 2025 bond was at 338bp.
Ahead of pricing, brokers had variously estimated fair value at anywhere between 165bp to 175bp on the three-year tranche, 185bp to 195bp on the five-year and 292bp to 300bp on the 10-year.
Syndicate bankers pitched fair value at the wider end of these ranges at: 175bp, 195bp and 295bp over respectively.
But even at the widest ends of the syndicate fair value estimates, the group still offered a new issue premium of 2.5bp for the three-year, plus 5bp concession for the five-year and 10-year.
One Singapore-based fund manager commented that Asian investors are likely to continue favouring investment-grade credits over high-yield bonds, since the former are trading at wider levels than their US counterparts. By contrast, Asian high-yield bonds, notably the Chinese property bonds, are trading broadly in line with their US peers.
The fund manager said: "Institutional investors are also starting to look at adding duration as the dollar strength continues to be a running theme."
Joint global coordinators for Huarong’s deal were: Credit Suisse, Standard Chartered, Wing Lung Bank, CMB International and Huarong International Securities.
Joint bookrunners were: Agricultural Bank of China, Bank of China, BOC International, Bocom Hong Kong branch, Bocom International, CCB International, CICC, Citi, Deutsche Bank, Haitong International, HSBC, ICBC (Asia), JP Morgan and Shanghai Pudong Development Bank Hong Kong.
In March, Huarong chairman, Lau Xiaomin said the bad-loan manager needs to access cheaper funding channels as the overall disposal of problem loans and troubled assets has been slow thanks to the economic downturn.
Huarong is one of the country's four state-owned bad-asset managers and was set up during the banking crisis in the late 1990s to remove nonperforming loans from the banking system. The firm raised $2.5 billion from a Hong Kong listing last year.
The "Midea" touch
Guangdong-based Midea Group also accessed the international bond markets on Thursday with a debut sale to fund overseas acquisitions.
The A3/A-rated company priced its three-year issue at 135bp over Treasuries after initially marketing it at 160bp over. Final pricing for the $700 million three-year bond was fixed at 99.914% on a coupon of 2.375% to yield 2.405%, according to a term sheet seen by FinanceAsia.
Midea, based in the southern Chinese city of Foshan, is seeking to gain a controlling stake in German industrial robot manufacturer Kuka for €4 billion ($4.48 billion). The white goods maker is offering €115 per share for Kuka, representing a 36% premium prior to the announcement.
The company said it will seek loans of up to €5 billion to fund the Kuka purchase. Earlier in March, the company bought a majority stake in Toshiba's home appliance business.
Joint global co-ordinators were: Citi, HSBC, ANZ, Bank of America Merrill Lynch, Bank of China, Deutsche Bank and ICBC (Asia).
