Shanghai Fosun Pharmaceutical Group begins bookbuilding for an Rmb3 billion ($471 million) domestic bond issue on Wednesday, hoping to take advantage of new liquidity flooding into the financial system following the central’s bank surprise cut to banks’ reserve requirement ratio (RRR) on Monday.
The medical products manufacturer, controlled by mainland billionaire Guo Guangchang, is returning to the domestic bond market for the first time since September when it issued Rmb400 million off its MTN programme via ICBC and the Import Export Bank of China. That three-year deal carries a 3.95% coupon and an AA+ rating from Shanghai Brilliance Credit Rating and Investor Services.
The new issue is being marketed on a spread of 2.6% to 3.8% by its joint leads Tebon Securities, UBS and Haitong Securities. It also has a five-year final maturity, with a three-year call option and 100bp step-up.
The final yield will be fixed on Thursday at the end of a two-day bookbuild.
On Monday, the People’s Bank of China (PBoC) surprised the financial markets with its 50bp RRR cut, some months ahead of analysts’ expectations. The move is expected to pump an estimated Rmb700 billion ($106.9 billion) of fresh liquidity into the market.
Sean Chang, head of Asian debt at Baring Asset Management in Hong Kong told FinanceAsia, “The PBoC has been ensuring adequate levels of liquidity in the financial system through a number of tools including its Open Market Operations (OMO) and the new RRR cut. These loose credit policies can help companies to raise money more easily.”
In a statement to the Hong Kong stock exchange, Qiyu Chen, chairman of Fosun Pharma, said the bond deal will be issued from an Rmb5 billion approved quota by the China Securities Regulatory Commission, the industry watchdog. It had planned to use Rmb4 billion to pay down existing debt and Rmb1 billion for general corporate purposes.
The new deal comes a few days after Fosun Pharma said it was cutting the size of a planned share issue from Rmb4.9 billion to Rmb2.3 billion.
Its Hong Kong-listed shares rose 2.55% to HK$18.48 on Tuesday, while its Shanghai-listed stock finished up by 1.06% to Rmb18.14.
It outperformed the Hang Seng China Enterprises Index, which rose 1.92% on the day to 8.068.29, but underperformed the Shanghai Composite index, which advanced 1.68% to 2,733.17.
Earlier this month, it announced an Rmb538 million investment to take up a 35% equity interest in a joint venture with Xuzhou Coal and Taiking Life Insurance to operate eight hospitals in Jiangsu province. In a research report, Bank of America Merrill Lynch said the valuation was reasonable and expects the acquisition to become earnings accretive in 2017.
The wider Fosun group is one of the country’s biggest private conglomerates, investing in a wide range of businesses including insurance, tourism and property.
However, Guo, who styles himself as China’s Warren Buffet, became caught up in the government’s anti-corruption campaign in December, raising concerns that the country’s ongoing crackdown on graft and market manipulations has extended from the state-owned companies to private sector.
Guo reappeared after being held for four days, without being accused of any wrongdoing.
