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China Merchants Bank sold a $500 million three-year debt instrument on Friday morning, pricing the note at the tighter end of the final price guidance as investors clamoured for the offering at zero new issue premium.
Rated Baa1/BBB+ by Moody’s and Standard & Poor’s respectively, the Chinese financial institution — via its New York branch — priced the Reg S/144A bond at Treasuries plus 147.5 basis points, which is 22bp tighter than its initial price guidance area, according to a term sheet seen by FinanceAsia. The offering has a coupon of 2.375%.
Asian borrowers are keen to tap global debt markets under the now-favourable market conditions and before rates trend upwards.
US Treasury yields have in fact started to climb amid signs the US economic recovery is back on track - circumstances prompting more issuers to consider raising funding sooner rather than later.
"It’s best to raise money now before the rates go up. This has spurred issuance of late," said a Hong Kong-based DCM banker who declined to be named.
Declines in US Treasuries this week - the longest losing streak since February - sent US 10-year yields to a two-month high of 2.21% on Wednesday. It has since dipped slightly, hovering around 2.17% on Friday, according to Bloomberg data.
Year-to-date volume for Asia ex-Japan bond issuers in the dollar-, euro- and yen-denominated space has reached an all-time high of $88.3 billion, up 5.5% from 2014's volume during the same period, according to Dealogic data.
China Merchants Bank’s latest dollar note comes after China Construction Bank’s blockbuster $2 billion Basel III-compliant tier-2 deal on Wednesday.
The next Chinese financial institution to raise a potential dollar offering is China Minsheng Bank. The Beijing-based bank is planning investor meetings in Hong Kong, Singapore and London from May 11.
Citi, CMBC Hong Kong, HSBC and UBS have been appointed joint global coordinators and book runners of China Minsheng's potential Reg S-only deal. Other book runners include Barclays, CCB Asia, Agricultural Bank of China, Bank of Communications, Deutsche Bank and Jefferies.
Big order book
China Merchants’s note received a total order book of $2.5 billion from 130 accounts, 67% of which went to Asia investors, followed by 27% in to US accounts, according to a source close to the deal.
Financial institutions subscribed to 68% of the bonds, followed by fund managers 17%, insurers and pension funds 13% and private banks 2%.
The nearest comparables for the offering includes China Merchants’s existing bonds expiring in June 2017 and August 2019 that were trading at a G-spread of 150bp and 160bp respectively.
Other comparables include A2 rated Bank of Communications and Agricultural Bank of China’s outstanding 2018 paper that were trading at a G-spread of 113bp and 105bp, added the source.
Fair value for China Merchants’s bond would come at Treasuries plus 155bp, indicating the deal offered negative new issue premium.
China Merchants Bank is China’s sixth largest commercial bank, with total assets of Rmb4.7 trillion ($760 billion) and a domestic market share of around 3%.
Established in 1987, China Merchants Bank is listed in both Shanghai (2002) and Hong Kong (2006), where its current market capitalisation is HK$558 billion ($72 billion). The bank’s largest shareholder is state-owned China Merchants Group, which owns a 20% stake and in turn is 100% owned by China’s central government.
Bank of America Merrill Lynch, Citi and HSBC were the lead arrangers, joint global coordinators and book runners of the transaction. Other joint global coordinators and book runners include CMB International and UBS. ANZ and Wing Lung Bank were also book runners.
