The Hong Kong debt capital market was boosted today by a benchmark HK$2.5 billion ($320 million) offering from the Airport Authority (AA) via HSBC. The deal, AA's first venture in the capital markets, is significant, not only in terms of its size, but also because it is the first time that a quasi-sovereign entity has issued floating rate notes.
The deal was split into two HK$1.25 billion tranches, of three- and five-year maturities. The three-year piece was nominally priced at 8bp over three-month Hibor, which with fees of 18 cents, offers a real spread of 14bp over. The five-year notes carry a spread of 18bp over, and with fees of 32.5 cents, a real coupon of 24bp over.
Bankers say that pricing on the deal compares favorably with issues from other institutions with high single A ratings. Bank of Tokyo Mitsubishi, for example, has a three-year bond trading at 15bp over.
HSBC's syndicate head Bryan Pascoe believes the deal appeals strongly to investors. "It offers fair and good value when you consider that there is very little liquid paper from quasi-sovereign institutions," he says. "The pricing is a reflection of both the quality of the issuer and favorable market conditions in terms of credit spreads in the Hong Kong bond market.
"It's a significant deal in the Hong Kong market, firstly because it's the first borrowing by the AA in the capital markets," Pasco continues. "Also, it's the only quasi-sovereign borrower to issue floating rate notes [FRNs], which makes it a benchmark for the market and in addition, given the size of the issue, adds real liquidity."
Pascoe also believes that the way and the speed in which the deal was executed was, if not quite a first, certainly unusual for Asian debt markets. "We did the deal using bond-style syndication, whereas most public FRN deals use loan-style syndications, which require extensive credit approval processes from the banks," he says. "This transaction has been executed like a Eurobond with only a one-day syndication. Only borrowers with a strong credit profile could currently achieve this kind of execution in the local market.
"The bond-style syndication is important in that it furthers the use of international standards in the Hong Kong market and adds transparency to the primary process," he concludes.
Investors included the treasury departments of domestic banks, some asset managers and even some mandatory provident funds, unusual because they usually focus on short-dated assets.
