Baosteel, a Chinese state-owned steelmaker, became the first mainland company to tap the dim sum market directly on Friday morning when it closed a Rmb3.6 billion ($564 million) offshore renminbi bond — the largest corporate dim sum issue to date.
Baosteel is the biggest of the three Chinese steel producers under the supervision of the State-owned Assets Supervision and Administration Commission of the State Council and was the first PRC-incorporated company to win approval from the National Development & Reform Commission to issue an offshore renminbi bond directly in Hong Kong.
Mainland companies and financial institutions have an overall quota of Rmb50 billion for direct issuance in the dim sum bond market this year and Baosteel is the first to issue under this quota.
The Rmb1 billion two-year bond priced at a yield of 3.125%, the Rmb2.1 billion three-year at 3.50% and the Rmb500 million five-year bond at 4.375%. All the tranches priced at the tight end of guidance, which was at 3.125% to 3.375% for the two-year, 3.5% to 3.75% for the three-year and 4.375% to 4.625% for the five-year. The notes were issued at par.
The two-year bonds mature on December 1, 2013, the three-year bonds on December 1, 2014 and the five-year bonds on December 1, 2016.
The deal was a decent size for the dim sum market and closed despite volatile markets. Although Baosteel had received approval to raise up to Rmb6.5 billion, the deal was announced at Rmb3 billion and capped at Rmb3.6 billion.
Deutsche Bank and HSBC were joint global coordinators and bookrunners. China Merchant Securities, DBS, ICBC International and Standard Chartered were also bookrunners.
Notably, the size of the five-year tranche was much smaller than the three-year tranche, despite both tranches gathering equal demand of Rmb3.5 billion from investors. According to one person familiar with the deal, the borrower decided on the sizes of the tranche and deliberately kept the five-year tranche small. There were 80 accounts and 60 accounts in the three- and five-year tranche respectively. The Rmb1 billion two-year tranche attracted Rmb1.75 billion worth of orders from 55 accounts.
As a result of the relatively small size, the Baosteel 2016s rallied in secondary and were bid at 100.5 with no offer on Friday, while the Baosteel 2014s slipped below par and were quoted at 99.85/99.95 early Friday afternoon. The Baosteel 2013s hovered around par.
Also supporting the performance of the 2016s was the strong allocation (59%) to insurance accounts, which tend to hold bonds to maturity. Fund managers were allocated 34% and corporates and others the remaining 7%. In contrast, the three-year tranche attracted more participation from the banks, which were allocated 48%. Funds were allocated 38%, insurers 8% and private banks 6%. For the two-year tranche, 45% was allocated to banks, 20% to funds, private banks 15%, insurers 5% and corporates and others 15%.
HSBC was ratings adviser to Baosteel and the issue was rated A3/A/A- by Moody’s/S&P/Fitch. The current rating from S&P is better compared to 2009, when its A-/negative rating was withdrawn.
