The $300 million 10-year deal looks set to ride on the back of positive momentum generated by China's jumbo Eurobond, which is scheduled to price on the day that Citic launches presentations in Singapore. A month ago, when it seemed as if the two deals might come head to head with Hongkong Land, there had been concerns that Citic might end up being the one to get cannibalized. Now it appears that unsatisfied demand from the China deal could feed through to Citic and help it meet its spread targets when it prices on Thursday, May 24.
Indicative pricing already suggests that joint bookrunners HSBC and Merrill Lynch are confident that the 144a Reg S deal will appeal to the same audience that has lapped up every single Greater China deal to emerge from Asia this year. Investors say that although formal guidance has not yet been released, the two banks are looking at a spread of about 60bp over Hutchison Whampoa's 2011 bond.
In terms of rating, the nearest comparable credit is Wharf Holdings, which has a Baa3/BBB rating to Citic's BBB-/Baa2. However, since the former's March 200 7 bond is extremely illiquid and the credit very property-centric, the two leads have turned their attention to Hutchison Whampoa, which, like Citic, has a diversified asset mix, and Bank of East Asia, which is similarly rated.
Since Hutch's 2011 bond is currently trading at a bid/offer spread of 176bp/169bp over Treasuries, and Bank of East Asia's Baa2/BBB-rated 2011 subordinated debt issue at 225bp/216bp, this would price a new Citic deal around the 236bp level.
One of the leads key tasks will be to re-brand Citic as a non-ITIC. This will be helped by the fact that both ratings agencies describe the company in terminology far removed from the maligned ITIC sector. In ratings reviews released yesterday (Tuesday), for example, Moody's highlighted the company's "prudent financial policy", and Standard & Poor's its "substantial recurring cash flows".
Indeed, most criticisms that have been leveled at Citic by equity analysts tend to revolve around the exact value management adds to a company that is considered by many as little more than an investment fund for key China and Hong Kong assets. For debt investors, on the other hand, this conservative strategy is considered an advantage rather than a handicap.
With total assets of $8.1 billion, the company has assets spanning infrastructure (45%), property (10%), aviation (35%) and communications (2%). About 75% of its assets and two-thirds of its revenues are derived from Hong Kong and about 25% of its assets and one-third of its revenue from China.
Where its debt ratios are concerned, observers say that the company has a net debt to equity ratio of about 26% and a net debt to capital ratio of 14.6%. As of December 2000, debt stood at HK$15.7 billion ($2.01 billion). Against this it holds about HK$5 billion in cash and a further HK$3 billion in marketable securities.
