China Huarong Asset Management, Korea's Doosan Infracore and a local government financing vehicle (LGFV) from costal Jiangsu province turned to the dollar bond market on Tuesday night, shrugging off widening spreads in the wake of Donald Trump's election.
The three deals were launched after a selloff that saw hundreds of billions of dollars wiped off the value of bonds last week intensified on Monday, as expectations grew that Trump's economic policies would lead to higher interest rates, tougher trade barriers and a widening US debt load.
But despite the volatility, state-owned Huarong — rated A3/A-/A — built a meaningful order book for its three-tranche 144A/Reg S transaction. The distressed debt manager garnered more than $7.5 billion of orders, surpassing the level of interest in its September issue, which captured $6.8 billion of demand for a perpetual non-call five deal.
A debut issue from Yancheng Oriental, a BB+ rated LGFV, was not so successful. The group, owned 100% by the Jiangsu Province through its various onshore and offshore units, only captured $380 million of orders before the release of final guidance, driven in part by anchor demand, according to syndicate bankers.
Bankers still think they can push ahead with more dollar bonds from Asian issuers, but they admit much will come down to evolving expectations of Trump's leadership — and the impact on Treasury yields.
"Whilst US credit weakened on Monday overnight, Asia's improved tone comes from a pause in the Treasury sell-off combined with a partial reversal of some overshoot," a syndicate banker commented. "The overall market condition remained cautious after the US election."
The yield on the US 10-year Treasury note was around 2.23% on Tuesday, only around 10bp off a 52-week high.
A three-pronged approach
Huarong's bankers initially marketed three-year and five-year tranches at 195bp and 220bp over Treasuries. They then narrowed guidance on the three-year bond to the range of 170-175bp and on the five-year note to 200-205bp over Treasuries.
In the end, both tranches came at the tight end of guidance. The $1 billion November 2019 bond was priced at 99.709 on a coupon of 2.875% to yield 2.977%, while the $1.35 billion November 2021 bond was fixed at 99.796% on a coupon of 3.625% to yield 3.67%, according to a term sheet seen by FinanceAsia.
The $650 million 10-year note was initially pitched at 285bp over Treasuries before pricing was tighened to 270bp. The final pricing of the November 2026 bond was fixed at 99.585 on a coupon of 4.875% to yield 4.928%.
According to a research note from a non-syndicate bank, fair value of the new three-year, five-year and 10-year should be at Treasury plus 170bp, 200bp, and 260bp, respectively, representing 20bp wide of Huarong's existing curve. The analysts adopted a reasonably cautious approach when measuring the asset quality of China's asset mangement firms amid their growing foreign-exchange risk.
In addition to the latest two deals, Huarong sold $2.5 billion of bonds in May. It has also applied for a Shanghai listing.
The joint global coordinators of the latest deal were HSBC, Huarong International Securities, Standard Chartered and Wing Lung Bank. The bond came with an exhaustive list of joint bookrunners and joint lead managers: ABC International, Agricultural Bank of China Hong Kong branch, ANZ, Bank of China, BOC International, Bocom Hong Kong branch, Bocom International, CCB International, China Minsheng Banking Corp Hong Kong branch, China Securities International, Commerzbank, Credit Suisse, Goldman Sachs, Haitong International, ICBC Asia, Morgan Stanley and Shanghai Pudong Development Bank Hong Kong branch.
Huarong managed to generate $2.3 billion of orders from 85 investors. Asian accounts provided the vast majority of that, and ended up taking 93% of the deal. European investors took the rest.
Fund managers were allocated 49%, banks 42%, sovereign wealth funds, insurance companies, and corporations 7% and private banks the remaining 2%.
More LGFV supply
Yancheng Oriental issued $300 million of bonds on Tuesday, joining a steady pipeline of LGFV issuers accessing the dollar-denominated bond market.
The Reg S three-year bullet trade came after Gansu Provincial Highway Aviation Tourism Investment Group issued a $500 million bond last week, which captured $2 billion of orders at peak level. But Yancheng appeared to get much less demand, barely covering the bond after final guidance.
Syndicate bankers said the outcome was in line with their expectations given the market volatility and Huarong's new deal, which withdrew much of the liqudity in the market. "Demand for high-yield names has turned cautious since last week, with investors adopting a more cautious approach," a syndicate banker said.
Fitch said Yancheng Oriental's financial profile in the past three years was characterised by large capex, negative free cash flow and high leverage, but it is strategically important to the city of Yancheng, the largest city in terms of geographic area in Jiangsu province.
Bank of China and DBS were the joint bookrunners, and pitched thee three-year note at 5.5% area, before tighening it to 5.4%. The November 2019 deal was priced at 99.316 on a coupon of 5.15% to yield 5.4%, according to a term sheet seen by FinanceAsia. The final order book size was not available at the time of going to press.
The two Chinese issuers were not the only Asian credits to take advantage of an improvement in the credit market. South Korean machinery maker Doosan Infracore raised $300 million from a three bond on Tuesday, getting help from a policy bank guarantee.
Bank of America Merrill Lynch, Standard Chartered and Korea Development Bank managed the deal, and initally approached investors with price guidance of 125bp over Treasuries. But after building enough demand to pull pricing in, they announced that the deal would price with a spread of 115bp while continuing to build the book.
The bond followed a roadshow in Hong Kong and Singapore at the start of the week, when bankers pitched not just the strength of the underlying credit — but also the importance of a full guarantee from Korea Development Bank. That guarantee gave the deal an expected issue rating of AA by Standard & Poor's.
Some 52 investors placed orders worth $750 million. Asian accounts bought 87%, with those in Europe, the Middle East and Africa taking the rest. Asset managers were allocated 70%, banks 15%, private banks 13% and other investors the remaining 2%.
Doosan will use the proceeds of the bond to pay back the bulk of an outstanding note, a $350 million 4.5% November 2017 note that it sold in 2011. HSBC, KDB and Standard Chartered were the bookrunners of that deal.
This story has been updated to include order book statistics.
