China Shanshui Cement priced a debut $400 million bond early yesterday morning against a backdrop of investor apathy towards China’s high-yield sector.
Barclays Capital, Credit Suisse, Deutsche Bank and Standard Chartered Bank were joint bookrunners.
The five-year non-call-three issue priced at a yield of 8.5%, at the tight end of the 8.5% to 8.75% initial guidance. There were rumours in the US that the deal was being whispered at mid-8%, but this was conjecture according to a source familiar with the deal.
China Shanshui Cement is the second Chinese cement company to tap the dollar market, after West China Cement issued its debut bond in January. That deal attracted exuberant demand from portfolio managers keen to diversify out of the real estate sector — the $400 million five-year non-call-three priced at a yield of 7.5% and gathered a $3.5 billion book from 230 accounts.
Since then, however, investors’ ardour for China high-yield names has cooled off somewhat. China Shanshui was expected to bring a deal of $300 million to $500 million and gathered an order book of $1.3 billion from more than 200 investors, with a final deal of $400 million.
“At the start of the year, there was investor fatigue towards China real estate and then we saw industrials coming out,” said one source familiar with the deal. “That pendulum has swung a bit now and there is apathy towards the China sector in general. But China Shanshui managed to price and raise $400 million.”
The bonds were quoted at 100.5 yesterday afternoon, half a point above the par issue price.
The supply of new bonds hurt West China Cement’s outstanding bonds and their yields rose from 7.6% to 7.95%, as investors switched out of them to buy into the new deal.
Although the two cement companies are quite similarly rated, China Shanshui is a much bigger cement company, and it is one of 12 Chinese cement companies supported by the state. Its issue is rated BB- by Standard & Poor’s and Fitch, whereas West China Cement’s issue is rated Ba3 by Moody’s, BB- by Standard & Poor’s and BB by Fitch.
China Shanshui Cement saw a stronger take-up from US investors, who bought 40% of the deal — compared to the 27% US participation seen for West China Cement’s deal. This should help support the bonds’ performance in the secondary market.
“Most US investors are buy-and-hold types, whereas Asian investors tend to have a trading mentality,” the source added.
Asian investors bought 46% and European investors bought the remaining 14%. Fund managers bought 69%, insurance 10%, private banks 9%, state funds 8% and banks 4%.
The company will use the proceeds to refinance $150 million of existing debt and the rest for expanding production capacity and general corporate purposes. There is a change-of-control put at 101. The bonds mature on May 25, 2016.
Elsewhere, after concluding roadshows in early May, ICICI Bank has decided to go ahead with its five-and-a-half-year bond, which was expected to price early this morning. Citi, Deutsche Bank, HSBC and Royal Bank of Scotland were joint bookrunners.
Indian thermal power company NTPC is expected to start roadshows for its dollar bond towards the end of May. Barclays, Citi, Deutsche Bank, Royal Bank of Scotland are joint bookrunners.
