Baosteel, a Chinese state-owned steel firm, is poised to become the first mainland company to issue an offshore renminbi bond. Management met with investors in Singapore on Tuesday and Hong Kong on Wednesday, with a view to raising up to Rmb6.5 billion ($1 billion).
Deutsche and HSBC are joint global coordinators and bookrunners. China Merchants Securities, DBS, ICBC and Standard Chartered are also joint bookrunners.
The company is said to be eyeing a multi-tranche issue that is expected to include a three-year bond. Although it has received approval to raise up to Rmb6.5 billion, it may not raise that full amount and the size will depend on what the market will allow.
Baosteel is rated A- by Fitch, A3 by Moody’s and A by Standard & Poor’s. It is operating in a cyclical industry that could be poised for a downturn, but has the advantage of being backed by the Chinese government. However, conditions in the dim sum bond market have become more challenging and there has been push-back from investors of late.
“I don’t like the whole dim sum sector,” said one Hong Kong investor. “I think it’s mispriced. There is no proper consideration of credit and insufficient liquidity. But I think Baosteel will get participation from the usual offshore renminbi investors. The CNPC 2014s are yielding about 3% and I think a three-year bond from Baosteel could sell for about 4%,” he added.
According to reports, the company plans to use the funds raised for offshore acquisitions. However, it does not seem to have any immediate need for the cash and its foray into the offshore renminbi market seems to be partly driven by the Chinese government’s desire to develop that market.
“Baosteel doesn’t really need the cash — they have plenty of cash onshore. So if the pricing is not in their favour, who knows, they may delay the issue. But they told us that they want to develop the dim sum market,” said one Singapore-based investor.
The Chinese government has thrown its weight behind growing the dim sum market and, while it has evolved rapidly, it still has a ways to go. Market participants observe that some of the recent dim sum bonds tend to be “clubbed” or held in the hands of a few banks and there ought to be more rated bonds.
Amid volatile markets, investors are now demanding a higher new issue premium. Japanese company Orix Corp on Tuesday issued a Rmb500 million three-year bond maturing November 2014 at a yield of 4%, some 65bp wide of the 3.35% yield that the Orix March 2014s were offering. The deal gathered an order book of about Rmb1.5 billion. ANZ, BNP Paribas, Credit Agricole, Daiwa, Mizuho and Standard Chartered were joint bookrunners.
Elsewhere, steelmaker Shougang Holdings was also out with a guidance of high 4% for a two-year offshore renminbi benchmark on Wednesday. BOCI, Citic, DBS, ICBC and J.P. Morgan are joint bookrunners. There is a change-of-control put at 101 and the bonds are unrated. Shougang is issuing off its Hong Kong entity, which is wholly owned by PRC incorporated Shougang Corp.
Away from the dim sum market, Korean energy company GS Caltex is on a non-deal roadshow with Citi and Goldman Sachs arranging meetings.
