China Resources Enterprise launches CB

China Resources Enterprise has sold a $220 million convertible bond through lead manager Morgan Stanley. The bought deal has a zero coupon and a five-year maturity. The conversion premium is 18.11%, which gives a 3.98% yield-to-maturity.

The issuer has agreed to a three-year call but thereafter the bond is subject to a130% hurdle. This implies that the bond would have a credit spread assumption of 230bp over the relevant Treasury. Investors have been further tempted by a dividend yield of 1.2%, The issue has a theoretical value of 101.2% and a bond floor 82.7%. Standard & Poor’s - the credit rating agency - has assigned the issue a rating of BBB-.

Analysts commenting on the deal believe that it has been rather aggressively priced, but given the rarity of a Chinese convertible, the deal should have gone well. China Resources Enterprise is the Hong Kong-listed arm of China’s foreign trade ministry. The convertible represents nearly 6% of the company’s issued share capital. Proceeds from the issue will be used to buy various businesses from its parent.