Li Ka-shing’s Hutchison Whampoa paid a surprise visit to the euro market on Wednesday, closing a €2 billion ($2.5 billion) dual-tranche bond that allowed the company to diversify its investor base and price inside its dollar curve.
Hutchison is a savvy borrower and the arranging banks — Barclays, Deutsche Bank and J.P. Morgan — were said to be in dialogue with the company for some time about tapping the euro market. The banks had been working on documentation for about a week, but there was always a chance that Hutch, a sophisticated borrower, would consider another currency, such as dollars.
“It was a quick process,” said one source. “We had been talking to them about the idea of tapping the euro market for some time, but we knew others were pitching hard as well to tap in dollars, so there was always a chance that the deal could go away.”
Hutch last tapped the euro market in 2009 with a €1.75 billion deal. It has operations in Europe and a natural need for euro. The proceeds are said to be for repaying existing debt. However, Hutch has also been aggressively acquisitive. It agreed to buy Orange Austria in February and early last month its unit 3 Ireland submitted a €2 billion bid for Irish telco Eircom. That bid was turned down, but Hutch is reportedly looking to submit a new bid. “It’s possible that Hutch is looking to build a buffer in case its bid goes through,” said a second source.
The success of the deal — which was launched amid rocky markets and swiftly concluded — opens the door for other potential Asian issuers to tap the euro market, though few other borrowers in the region enjoy Hutch’s visibility in Europe.
“European investors are well aware of the crisis they are going through and the deal offered them a chance to diversify out of European credits. However, Hutch is a name that they are familiar with. I’d like to think more Asian issuers could tap the euro market, but I’m not sure if that is the case,” the first source added.
The deal comprised a €1.25 billion five-year bond and a €750 million 10-year bond. It is the biggest public euro-denominated bond from an Asian issuer and the first euro bond out of Asia this year. Hutch is said to have priced its five-year bond about 10bp through its dollar curve and its 10-year bond about 25bp through its dollar curve, for a deal of similar size.
So far this year, Hutch has tapped the dollar market three times for a total of $3.5 billion, so perhaps it was mindful of reaching out to that market again. In January, it issued a $1.5 billion dual-tranche bond and followed with a quick $1 billion tap in February. Earlier last month, it also issued a $1 billion hybrid.
Its latest deal was announced and closed within a few hours. The leads announced a benchmark deal at 8.30am London time, with an initial guidance of 145bp to 150bp over mid-swaps for the five-year and 195bp over mid-swaps for the 10-year bond. This was revised to a final guidance of 140bp to 145bp over mid-swaps and 190bp to 195bp over mid-swaps at 10.30am London time on the back of an order book of over €3 billion order book. The bonds were finally priced at the tight end of the final guidance with a €4.3 billion order book and the transaction was upsized from an initial target size of €1.5 billion.
“It went well,” said the first source. “Yesterday did not seem like the best of times to tap the market. Conditions deteriorated as the morning progressed in Europe but nonetheless, Hutch managed to find a window.”
Despite weak markets, the bonds continued to tighten in secondary trading. The euro-denominated Hutch 2017s and Hutch 2022s were quoted 4bp tighter and 2bp to 3bp tighter in secondary trading on Thursday afternoon. About 90% of the bonds were distributed to European investors.
The coupon for the five-year bond was fixed at 2.5% and the notes were reoffered at 99.606 to yield 2.585%. The coupon for the 10-year bond was fixed at 3.625% and the notes were reoffered at 99.95 to yield 3.631%. Hutch is rated A3 by Moody’s and A- by S&P and Fitch.
