Huaneng Hong Kong Capital closed a $400 million bond on Tuesday night — the first Asian dollar bond to close in more than a week. After a torrid first five months, Asia’s primary dollar bond markets hit a brick wall last week, amid volatility and concerns over rising interest rates.
The last dollar bond to price out of Asia ex-Japan was Vedanta’s jumbo high-yield offering on May 22. Since then, credit markets have been extremely volatile. US Treasury yields have risen sharply and bonds have sold off heavily in secondary markets. As a result, a number of companies that have held roadshows have chosen to postpone their deals.
Huaneng’s bond closed amid this precarious backdrop, but it attracted a muted book of $550 million with a disproportionally high allocation of 73% to the banks. Fund managers were allocated 22%, private banks 3% and insurance and other investors 2%.
J.P. Morgan, Bank of China and Wing Lung Bank were joint global coordinators and bookrunners. CCB International, DBS, Goldman Sachs and ICBC Asia were also joint bookrunners. According to a source Wing Lung Bank and CCB International were added to the deal at a later stage.
According to a source familiar with the deal, it got done with the support of Chinese banks. “Based on the spread and lack of a credit rating, it was a huge struggle,” he added.
The leads had gone out with an initial guidance of Treasuries plus 245bp and communicated to investors that there were strong anchor orders, which gave comfort to other investors to come into the deal. The bonds priced at a spread of Treasuries plus 240bp and they went on to trade wider in secondary by about 10bp — and were quoted at Treasuries plus 245bp/250bp. However, it is uncertain how much liquidity the bonds will have in secondary trading.
The bonds are guaranteed by China Huaneng Group Hong Kong. China Huaneng Group, the largest power generation company in Asia, has provided a keepwell deed and equity undertaking, but neither of these are guarantees.
The deal is a return to the US bond market for the group since 1997. The proceeds will be used to invest in Huaneng Hong Kong’s portfolio companies and potential acquisitions and to repay Huaneng Hong Kong’s bank borrowings.
