Li Ka-shing’s Hongkong Electric Finance was forced to pull its 10-year US dollar benchmark bond on Tuesday night as investors shied away from the deal amid simmering geopolitical tensions on the Korean peninsula and a spike in risk aversion.
The bond was marketed to investors with a guidance at the 10-year Treasuries plus 140bp mark on Tuesday morning. The Reg S-registered bonds were to be issued off the company’s medium-term note programme and were expected to price as early as Tuesday. HSBC, Royal Bank of Scotland and Standard Chartered were joint bookrunners.
At the outset, it looked as though the deal was poised to cross the finish line. Based on the guidance, the bonds offered a generous yield pick-up over CLP Power’s 2020s, which were quoted at 105bp over Treasuries around the time Hongkong Electric Finance was in the market.
CLP Power, Hong Kong's leading power generator, is rated A+ by Standard & Poor's, which is similar to Hongkong Electric. CLP's bonds mature in March 2020 but the yield pick-up offered by Hongkong Electric would have more than compensated for the slight extension in tenor.
“The deal wasn’t expensive. But investors just don’t want to take any risk at the moment. It is the year-end and the market conditions are not there,” said one banker on the deal.
While the deal was in the market on Tuesday, credit conditions took a sharp turn for the worse amid heightened geopolitical tension in Korea. The concerns surrounding Korea also sent Asian stocks tumbling. The Hang Seng Index slid by 2.6% that day. Meanwhile, US and European equities were also afflicted by concerns that Ireland’s debt problems may spread to other European countries.
“It’s the fear factor. There are worries over North Korea and the Irish resolution is not convincing,” said one banker off the deal.
Hongkong Electric joins a growing number of issuers that have had to hold off their deals. At least three Asian issuers have gone out with guidance and subsequently failed to price dollar bonds in the past two weeks.
Vietnam National Coal and Mineral Industries (Vinacomin) was forced to pull its $500 million 10-year Reg-S/144A bond on Monday night, after going out with guidance in the 7.25% area. ANZ, Citi and Credit Agricole were joint bookrunners.
And last week, Chinese developer Yuzhou Properties went out with guidance of 13% to 13.5% for a high-yield bond that also did not close. BOC International, Nomura and RBS were joint bookrunners.
As the year draws to a close, investors are showing very limited appetite for risk. According to one private banker, “clients are suffering from indigestion” and it is not surprising to see deals being pulled.
Other companies have held investor meetings and subsequently gone silent. These include Energi Mega Persada, part of Indonesia's Bakrie group, which was being roadshowed by Nomura; and Singapore-listed Chinese steel maker Delong which had mandated Credit Suisse for a bond.
There is a pipeline of deals waiting out there. But it remains to be seen if the market can support them.
China South City Holdings, an operator of integrated logistics and trade centres in China, held investor meetings in Hong Kong yesterday, and will be in Singapore today and London tomorrow. BOCI Asia and UBS are the leads.
Meanwhile, Hongkong Electric is expected to return to the market when conditions are more conducive. “The company wants to raise money so if there’s a window of opportunity we will come back – it may be next week or next year, we don’t know,” said the banker on the deal.
Hongkong Electric is one of Hong Kong's two main electricity utilities. However, the company has been diversifying overseas in recent years and has investments in Australia, the UK, Canada and other countries. Hutchison Whampoa subsidiary Cheung Kong Infrastructure holds a 39% stake in the company.
