The Asia dollar bond drought has officially ended. On Monday, China Zhengtong Auto and PTT Exploration & Production both waded into the dollar bond market and, on Tuesday, the Republic of Indonesia and KDB both started marketing dollar bonds.
“We are seeing issuers return and the new issue premium seems to be returning to markets, so there is some demand provided issuers pay up,” said one Singapore-based fund manager on Monday.
China Zhengtong Auto offered a new issue premium over its peers. The company had attempted to tap the market last year and had gone out with guidance of about 11%. It returned this time with a standby letter of support from Bank of China, Macau branch, which lifted the issue rating to A1 by Moody's.
The fee that China Zhengtong Auto paid Bank of China to provide the credit enhancement was not disclosed but, according to a person familiar with the deal, it offered cost savings overall - given that the coupon was 4.50% and the yield was 4.561% - much lower than the 11% guidance last year.
For Bank of China, offering a letter of support requires less capital to be set aside compared to lending to the company, and also has a lower impact or no impact on certain ratios including loan to deposit ratios.
The deal was the first from the auto sector in China, with comparable deals including outstanding bonds from Cosco, Hainan Airlines and Zijin Mining, which have letters of support from Bank of China.
According to the person familiar with the deal, those bonds were trading at low to mid 200bp over Treasuries. China Zhengtong Auto's new bonds came at Treasuries plus 285bp, at the tight end of final guidance, and the new issue premium would have been at least 15bp. In secondary markets, the bonds traded tighter at Treasuries plus 270bp.
JP Morgan was the sole global coordinator and bookrunner. Bank of China and Credit Suisse were joint bookrunners.
Elsewhere, Thai oil and gas company PTTEP closed a $500 million five-year bond that came with no issue premium. PTTEP, however, benefits from the dearth of issuance out of Thailand.
The deal was announced on Monday, with an initial guidance of about Treasuries plus 215bp and eventually printed at Treasuries plus 200bp. The leads had told investors the deal size was limited at $500 million, which gave investors comfort.
The company has outstanding 2015s and 2021s, which were trading at Treasuries plus 155bp and Treasuries plus 200bp respectively, and, after adjusting for the curve, the new bonds came roughly flat to secondary levels. In secondary, the bonds tightened by 5bp-8bp and traded at Treasuries plus 192bp/195bp on Tuesday.
Asian investors were allocated 49%, US investors 26% and European 25%. Fund managers were allocated 44%, banks 31%, insurance 11%, pension funds 10% and private banks 4%. The deal attracted an orderbook of $2.2 billion from 175 accounts. Goldman Sachs, HSBC, Standard Chartered and UBS were joint bookrunners.
Shortly after the deal priced, on Tuesday, Thai bank TMB Bank announced investor meetings, arranged bty HSBC, ING and Standard Chartered.
