Hong Kong Electric (HKE) is tapping the market for a A$700m equivalent five year bullet refinancing. HSBC is running the books on the deal and underwrote the transaction along with arrangers Bank of China, Hang Seng bank and Standard Chartered.
The credit has been launched straight into general syndication and banks have the option of lending in either US dollars for a margin of 28bp or Australian dollars at 30bp. Arrangers pledging the equivalent of A$30m or more earn an all-in of 29bp for US dollar commitments and 31bp for Aussie dollar contributions and lead managers committing A$5m to A$29m equivalent gain 28.5bp or 30.5bp respectively.
According to figures supplied by Dealogic, pricing has been reigned in considerably from the original A$500m deal, which was completed in January 2000 by arrangers Barclays and HSBC. That facility paid a top-tier all-in of 70bp for $75m tickets to lead arrangers, a substantial reduction in just three years. This transaction was syndicated in conjunction with a A$500m for Cheung Kong Infrastructure Finance.
Both financings were raised to fund each of the borrowers' equity portions for an A$3.5bn acquisition of the electricity assets of the South Australian government (ETSA). The purchase of these assets marked the two borrowers' first excursion into the Australian power market. Since then HKE has added Powercor in 2001 and then more recently Citipower in 2002.
For the purchase of Powercor, HKE raised a A$405m five-year loan through arranger SG. This deal was priced at 43bp all-in for top tier tickets of A$50m - significantly tighter than the 70bp offered on the original fundraising for the equity stake in ETSA.
Citipower's financing was initially supplied through a A$1.3bn bridge facility in which both HKE and Cheung Kong Infrastructure acted as joint borrowers. This was then taken out through a A$675m bond issue spread across two credit wrapped tranches and two unwrapped portions. These assets total an investment of some A$7bn in Australia
HKE is also looking at purchasing further stakes in other power generators across the region and is currently developing a 1,400MW plant in Thailand. Bankers have suggested that further fundraising opportunities will arise from this acquisition activity, although one loan syndicator pointed out that it would be difficult to consider joining if pricing fell any further as even at these levels the credit has been tightly priced.
This sentiment has been echoed across the Hong Kong banking community as pricing on blue chip corporate loans continues to tighten. Market observers have long expressed concern about the lack of mandates in the Hong Kong loan market as only a handful of borrowers are raising funds and this is forcing the banks to cut pricing as they scramble for these precious mandates.
Some second tier corporates have taken the plunge and the response to these deals has been excellent. However, many have chosen to stay away as they are either unwilling, or unable, to pay up for fresh funds. Another issue that has been highlighted is that heavyweights HSBC and Bank of China are willing to offload their excess liquidity into blue chips at these prices as they seek to build relationships in the hope of securing more lucrative business in the future. Many bankers have especially criticised Bank of China for underwriting and holding huge portions of deals with little concern to their bottom line.
The timing of the deal has also been questioned by some bankers as many are concerned that the Sars outbreak in Hong Kong will be a difficult obstacle to overcome. Despite these misgivings officials close to the deal are confident of a successful syndication as investors are still looking to book quality assets such as this.
Responses are due in a couple of weeks.
