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Hutchison Whampoa, controlled by Hong Kong tycoon Li Ka-shing, priced a $1 billion hybrid early Thursday morning, returning to the US dollar bond market after meetings with Singapore dollar investors last month failed to lead to a deal. DBS and HSBC were arrangers for those meetings and, back in April, it was said to be a “non-deal roadshow”.
However, according to market participants, the leads were attempting to put together a deal, or at least testing the market. “There were no terms as far as I know. But, yes, everyone knew they were trying to put a deal together,” said one market participant, adding that the Singapore market was not deep enough and that, after swapping the proceeds back, the pricing would not have been much cheaper than issuing in US dollars.
The fact that HSBC managed to stay on the dollar bond led to some annoyance on the street. “Hutch was trying to do a deal in Sing dollars — which failed,” said another market participant. “Usually when a deal fails you don’t see the same lead on the next deal, but yet we see HSBC on Hutch’s dollar deal. They are unstoppable but they do lend tonnes to Hutch.”
The $1 billion perpetual non-call-five deal priced at 6%, which was in line with the initial price talk and equivalent to a spread of 517.6bp over five-year Treasuries. The hybrids priced at the tight end of the final guidance of 6% to 6.125%. On Thursday, the bonds were quoted at a range from 99.75 to 100.25.
The deal attracted an order book of $3 billion from more than 170 investors. The perpetual resets at May 2017 and every five years thereafter at the prevailing five-year Treasury plus 517.6bp. There is a one-time step up of 100bp from May 7, 2022. The expected issue rating is Baa2 by Moody’s and BBB by Standard & Poor’s and Fitch respectively, and the hybrid will receive 50% equity credit from the three rating agencies.
The deal was similar to the first hybrid Hutch issued back in 2010, with a few differences. The replacement capital covenant (RCC) — which requires the borrower to replace the hybrid with an instrument of similar equity content if it calls the hybrid — takes effect from the issue date for Hutch’s latest deal. In contrast, for its first deal, the RCC kicks in a day after the first call date (at the fifth year), which meant that there was a strong incentive for Hutch to call those bonds at the fifth year.
The RCC for Hutch’s latest deal lasts until 2042, but there are certain carve-outs under which it does not apply and the terms are privately negotiated between rating agency S&P and the company. Unlike Hutchison’s 2010 issue, which converts to a floating-rate note after the 10th year, Hutch’s hybrid will stay a fixed-rate note.
The outstanding Hutch perpetual was trading at a yield of 5.5% and Hutch’s latest perpetual came 50bp wide of that. “I think Hutch was lucky it got the deal done and raised the money amid soft markets, but I don’t think it got a cheap deal,” said one banker.
Asian investors were allocated 53%, European investors 32% and US investors 15%. Private banks were allocated 48%, fund managers 41%, insurers 8% and banks 3%. Goldman Sachs and HSBC were joint bookrunners.
Hutchison has been actively tapping the dollar market this year, having already raised $2.5 billion. It has been on the acquisition path, but the proceeds for its latest bond issue are said to be for refinancing purposes.
“Moody’s anticipates that the proceeds of the hybrid will be used primarily for the refinancing of existing debt falling due in 2012, which will serve to term out the debt maturity profile and is credit positive for Hutchison Whampoa’s overall credit profile,” says Laura Acres, a Moody’s vice-president and senior credit officer.
Elsewhere, Korea’s Lotte Shopping priced a $400 million five-year bond, also early Thursday morning, tapping professional US investors for the first time. The initial guidance was at the area of Treasuries plus 260bp and pricing barely budged from there, with the bonds pricing at Treasuries plus 260bp, at the final guidance.
The deal attracted $900 million of demand from 66 investors. US investors were allocated 58%, Asian investors 37% and European investors 5%. BNP Paribas, Citi and Goldman Sachs were joint bookrunners.
