You would not be forgiven for missing the resurgence in the debt markets, despite the headlines being dominated by last weekend's football. Last week the Korea Exchange Bank, ICICI Bank and Bank of East Asia (BEA) printed benchmark deals. Adding to that, Li & Fung returned with a $350 million tap of its existing 2020 bonds.
Issuers have been sitting on the bench for quite some time looking for opportunities to comfortably and confidently access the market. Those opportunities were present during the latter half of last week when, as one banker put it, "it was a good week to be doing deals".
Typically pricing on a Friday can be sub-optimal, but as one banker said: "Given the market was constructive it was best to get the trade done Friday than run the risk of rolling into another week when prospects may not remain so good."
And this is exactly what happened with both BEA and Li & Fung pricing late Friday.
It was the first time this year that BEA issued bonds in the US dollar market, printing a $450 million A3/BBB subordinated deal. The Reg-S notes pay a 6.125% fixed rate coupon and will mature on July 16, 2020. They were re-offered at 99.04 to yield 6.256%, which was equivalent to a spread of 320bp over the 10-year US Treasury yield.
BEA was the fifth Hong Kong bank to price this year, and investors looked to Bank of China (Hong Kong), Dah Sing Bank's $225 million 10-year bonds (priced February 4), the new Standard Chartered $750 million 10-year securities (priced June 17), and the recent Citic Bank International notes to assess relative value for the new issue.
At the time BEA was announced, the bookrunners -- Citi and J.P. Morgan -- saw the bonds of BOCHK trading at Treasuries plus 240bp, Dah Sing at 300bp, the new Standard Chartered bonds at 275bp, and Citic Bank trading at 375bp.
Against these comparables, the general perception was that BOCHK was a significantly better credit than the new BEA, with Citic at the other end of the scale. Some bankers took the view that BEA's credit quality was similar to Dah Sing and Standard Chartered, so should be priced in line with where these two banks were trading.
However, Brayan Lai, credit analyst with Credit Agricole CIB, had a different opinion. "BEA should have fair-value outside Citic in term of its credit fundamentals and issue size," said Lai. "It doesn't look particularly appealing to me and I would rather settle for the higher spread paying Citic."
However, rumours have circulated that BEA could be the target of a bid from a Chinese lender looking to enter into offshore markets or from international banks hoping to take advantage of Hong Kong's strategic trade role in China.
Lai said that the presence of strategic investors and the M&A theme may have helped tighten BEA's price.
Initial price guidance was around 320bp, and the deal eventually priced exactly at that spread over the US Treasury yield.
Secondary trading had not deviated too much from the re-offer price and by late Monday morning the broader market had remained unchanged. Traders saw the notes still within 2bp either side of 320bp.
BEA managed to secure orders from 108 accounts, accumulating a $1 billion book. The bulk of the issue was distributed to Asia (90%) and the remaining 10% was placed in Europe.
By investor type, private banks represented the biggest piece of the pie with a 50% allocation, fund and asset managers bought 30%, banks 16% and corporate plus other types of investors took 4%.
Li & Fung
The other bond launched on Friday was by Li & Fung, which returned to the market with a $350 million tap of an existing issue which pays a 5.25% coupon and has a maturity date of May 13, 2020.
The lead managers for the deal -- Citi, HSBC and J.P. Morgan -- initially announced a tap of $100 million. However, when it was clear that the market was able to digest a deal size much larger than that, the tap was upped to $350 million. This brought the total size for the 2020 securities to $750 million.
"It's an extremely popular name in the region, so with this name you can put a small re-open out there and expect that demand shall be fairly significant," said a source familiar with the transaction.
The issue attracted a final order book of $1 billion from 90 accounts. This healthy order book may be a reflection of the company's ambitions to continue on its business development and acquisition plans. This current transaction brings its pool of acquisition funds up to $1.15 billion.
As it was Reg-S deal, only Asia and Europe were involved in the trade. Asian investors were allocated 73% of the issue and the remaining 27% was sold to European accounts. This was a different distribution to the original deal, in which 90% of the bonds were placed in Asia.
But, on both occasions, there was a strong bid from locally based high-net-worth individuals, who typically support issues from Hong Kong borrowers. On this particular occasion, the split of Asian investors was said to be fairly evenly distributed across Hong Kong and Singapore.
By investor-type, fund managers bought 61% of the new bonds, banks took 18%, insurance companies 8%, retail 8%, central banks 4% and other types of investors bought the final 1%.
The market backdrop during Monday was similar to Friday's: quiet and flat. By close of business in Asia, Li & Fung was trading at 167bp over the 10-year US Treasuries and BEA was still being seen on the screens trading at a spread of 320bp.
With the quieter session, no more deals were announced yesterday. Despite this, there are strong market rumours that the new issue pipeline is full, with several borrowers looking for an opportunity to price a deal. Petroleum Authority of Thailand (PTT), ICBC Bank and Sumitomo Mitsui have been on the road meeting investors, and all are expected to launch deals soon.
