State-owned Beijing Enterprises raised $1 billion from bond investors early Friday morning, with strong support from Asian buyers.
The company raised the money in two tranches: $600 million at a 10-year maturity and $400 million at 30 years. The bonds were issued by Mega Advance Investments, a BVI subsidiary, and were marketed to professional investors in the US, but Asian demand dominated both tranches, and particularly the 30-year portion where two-thirds of buyers came from within the region.
Previous 30-year bonds from similar Chinese state-owned borrowers have attracted much better demand in the US — CNOOC sold 64% of its January offer in the US, while CNPC sold 50% of its April offer there.
Bankers attributed the relatively weaker US interest for Beijing Enterprises on its slightly lower credit rating (CNPC is a strong single-A and CNOOC a double-A) and the fact that it is not centrally controlled by the state, but is a municipally controlled public utility. Investors are also expecting strong supply from other big state-owned firms this year.
Even so, the strong Asian interest in Beijing Enterprises helped the company to price inside its initial guidance and roughly in the same territory as where a new Sinochem bond would be expected to print, according to one bond specialist. The 10-years pay 195bp over US Treasuries, while the 30-years are priced at 210bp over.
Investors looked to Sinochem as a pricing comparison because the two companies are similarly rated — Beijing Enterprises is rated Baa1 by Moody's and A- by Standard & Poor’s, which puts it one notch higher than Sinochem on the S&P side.
The global coordinators — Bank of America-Merrill Lynch, HSBC and Morgan Stanley — put out initial price guidance on Wednesday, when Sinochem was trading at around 190bp. The banks argued that a new Sinochem deal would come to market at around 210bp, based on the new-issue premium that investors are asking for these days, and aimed to price through that.
That rich premium is driven by the number of Asian investment-grade issuers trying to borrow money in the dollar markets this year. Supply so far has already been high, with some market participants expecting 25% growth for the full year. That seems achievable. The pipeline is full of would-be issuers and international bond investors are hungry for paper due to the lack of supply from the US and other developed markets. Add in the growing supply of (and demand for) dim sum bonds and the region’s debt market seems set for a very strong year.
Beijing Enterprises uses the funds it raises to invest in infrastructure and public utilities in Beijing. It first listed as a red-chip in Hong Kong back in 1997, to overwhelming demand. At the time, it was a broad-ranging consumer conglomerate with interests in brewing, retail, hotels, tourism and other similar businesses. Since then, it has focused on the provision of public utilities, mainly gas, expressways and water, though it still owns Yanjing Beer as well.
Demand for the 10-year bonds reached $1.5 billion, with 51% going to investors in Asia, 38% to the US and 11% to Europe. By account type, 71% went to funds, 33% to insurers, 17% to banks, 7% to corporates and 5% to others.
For the 30-year bonds, demand reportedly hit $1.3 billion, with 66% going to investors in Asia, 26% to the US and 8% to Europe. By account type, 47% went to funds, 11% to banks, 4% to corporates and 5% to others.
