A subsidiary of Cnooc, the largest offshore oil and gas producer in China, on Thursday became the first mainland group to raise a dual-tranche senior unsecured fixed-rate note, launching a debut in European markets that diversified its fundraising efforts.
The deal by Cnooc Curtis Funding No. 1 was split into a $1.3 billion 10-year tranche with coupon of 4.5% and €500 million ($674 million) seven-year tranche with coupon of 2.75%, according to sources.
Global investors welcomed the deal – notably the European market – and were keen to grab a slice of the credit for diversification purposes. Both the dollar- and euro-denominated tranches were oversubscribed by approximately six and eight times respectively.
“When you have that type of dynamics in a book and you have a large preponderance of real money accounts wanting to purchase these notes, then you get a very positive outcome for the borrower,” said a source close to the deal.
“Because of the way of that the euro market has been digesting supply, we felt that it was appropriate for the SOE to market in Europe to see how European investors would respond to the credit. This could lead to potential pricing leverage for the overall transaction.”
With an initial price guidance of 115bp above the euro’s mid-swap for the euro tranche and 210bp over Treasuries for the dollar Reg S/144a tranche, both tranches priced tighter by 25bp, said the sources.
The dollar tranche was priced flat inside Cnooc’s existing curve. The outstanding Cnooc 2022s were trading at a G-spread of 200bp while its 2021s were at 197bp and, after adjusting for the curve, the reference point for the new deal was 200bp above Treasuries. In secondary markets, Cnooc’s new deal is trading 15bp tighter at 170bp above Treasuries.
The proceeds of the deal will be used partially to finance its acquisition of certain interests in Queensland Curtis LNG (Liquefied Natural Gas) project from BG Group worth $1.93 billion, as well as for other general corporate purposes.
Bank of China, Goldman Sachs, JPMorgan and UBS were the joint global coordinators of the deal.
China SOEs
Chinese state-owned enterprises (SOEs) have been flooding the market in recent weeks, encouraged by low US Treasury (UST) yields and the need to tap this recently opened window before the Golden Week holiday beginning October 1.
Year-to-date volume for China SOE G3 issuance has reached $22 billion with 26 deals, which is 68% higher than last year’s volume of $13.1 billion with 15 transactions during the same period, according to Dealogic data.
China Uranium Development Company, a subsidiary of China General Nuclear Power (CGNP), seized the opportunity to market a dollar debut in international markets on Thursday, according to sources. The entity – whose guarantor is its parent company – successfully raised a $600 million five-year bond at a coupon of 3.5% on the same day during New York hours.
The Reg S/144a deal was priced 20bp tighter than its initial price guidance of 240bp above Treasuries. It received a book order of more than $2.5 billion from more than 150 accounts, with 84% of investors coming from Asia, 13% from Europe and the remaining from offshore US.
“It was great timing from an issuer perspective,” said a source close to the deal. “The market had a stable tone, with USTs hitting seven-week lows. Also, the company got it out ahead of Golden Week, which will shut down China as well as US budget talks, which could cause a lot of volatility going into October.”
The 10-year UST yield fell to 2.78% on September 25, the lowest point since August 30, on speculation that low inflation in the US will give the Federal Reserve more flexibility in winding down its government bond-buying programme as it began its monetary policy meeting.
CGNP’s bond is currently trading around 213bp above Treasuries in secondary markets, which is 7bp tighter than it priced.
Fund managers subscribed to half of the bond, while 35% came from banks, 9% from insurance sector, and the remainder from the public sector and private banks.
HSBC, JPMorgan and China Development Bank were the global coordinators.
