Two Asian borrowers from opposite ends of the credit spectrum successfully completed fundraising exercises this week: state-controlled State Grid of China Corporation with a $5 billion multi-tranche deal and Indonesian oil and gas producer Saka Energi with a $625 million seven-year debut bond.
The success of both sales represents a vote of confidence in Asian G3 bond markets as issuers seek to lock in low borrowing costs, with traders now pricing in a 71% chance of a US interest rate hike in June, up from 49% last week, according to CME data.
“Spreads on Asian investment-grade corporate credits were tighter on Wednesday, while their high yield counterparts were little changed,” a Hong Kong-based fixed-income trader told FinanceAsia. “The tight spread was due to technical reasons such as liquidity and hunger for yield rather than an improvement in credit fundamentals.”
“The orders obtained by State Grid and Saka Energi highlight a robust demand for new deals,” the trader added.
State Grid, the world’s largest utility company by assets, captured more than $10 billion of demand at peak, while Saka Energi garnered another $4.5 billion of orders before the release of final guidance, two syndicate bankers told FinanceAsia.
Aggressive pricing
Rated Aa3/AA-/A+, State Grid tapped the dollar bond market on Wednesday, a day after state-owned peer State Development & Investment Corporation drew an impressive $11 billion order book for its $1 billion debut sale.
All four tranches were priced well inside initial guidance and somewhat inside existing secondary curves, leading to a slightly weak performance in early secondary trade, with spreads widening by 0.5bp to 9bp on Thursday, according to the fixed-income trader.
Taking both the 144A and Reg S route, State Grid priced its new $900 million May 2020 bond at 85bp above US Treasuries during New York hours on Wednesday, compared with initial guidance of 110bp.
The group also sold a $1.25 billion five-year bond at 95bp above US Treasuries and another $2.35 billion in 10-year bonds priced at a spread of 120bp. The final pricing on both tranches was slashed by 25bp from initial guidance.
And for the 30-year bond, State Grid raised $500 million at a yield of 4% compared with initial guidance put at “4.15% area” in a term sheet seen by FinanceAsia.
Joint global coordinators on the bond sale were Citi, HSBC, BOC, ICBC Intl, Morgan Stanley, and Goldman Sachs, while Deutsche Bank, Bank of America Merrill Lynch, CCB, JP Morgan, ANZ, Mizuho Securities, UBS, and Credit Suisse were joint bookrunners.
“Investor-friendly” debut
Saka Energi, which is owned by Indonesia’s largest natural gas producer Perusahaan Gas Negara (PGN), ventured into international bond markets for the first time on Wednesday, two days after India's HPCL-Mittal Energy sold an upsized 10-year deal. Both Saka Energi and HPCL-Mittal are rated Ba1 by Moody’s and BB by Fitch.
Adopting the 144A/Reg S route, the oil and gas producer went out with initial price talk in the “4.875% area” on Wednesday morning, before tightening the deal to 5bp either side of 4.5%. In the end, the $625 million May 2024 note was priced to yield 4.45%, according to a term sheet seen by FinanceAsia.
In trying to determine fair value, bankers used parent PGN’s outstanding $1.35 billion May 2024 note as a benchmark. With a quoted cash price of 106.25, this bond yielded 4.05%, implying the Saka Energi deal was priced with a 40bp new-issue concession.
“The new-issue premium was paid [because it has] a lower rating than its parent and there is no direct guarantee from the parent PGN,” a syndicate banker told FinanceAsia. PGN is an investment-grade company with a rating of Baa3/BB+/BBB- from Moody’s/S&P/Fitch.
In contrast to State Grid, Saka Energi’s 2024 note rose in early secondary trade, rallying to 100.4/100.45, according to the syndicate banker.
BNP Paribas, Citi, and UBS were joint global coordinators of the bond sale, while HSBC, Mandiri Securities, and Mizuho Securities were joint bookrunners.
