Hutchison raises $1.5 billion in global bond deal

Hutchison Whampoa, the conglomerate headed by Kong Kong tycoon Li Ka-shing, priced a $1.5 billion 10-year global bond early Tuesday morning local time. It was only the second global bond issue by an Asian corporate so far this year, after Korean steel maker Posco raised $700 million two weeks ago.

The bonds pay a coupon of 7.625% and were reoffered at 99.676 for a yield of 7.672%. They mature on April 9, 2019.

The bonds are issued by Hutchison Whampoa International and guaranteed by Hutchison Whampoa, which is rated A3 (with a negative outlook) by Moody's Investors Service, and A- (stable) by both Standard & Poor's and Fitch Ratings. The lead managers, Deutsche Bank, HSBC and J.P. Morgan expect the bonds to achieve the same respective credit ratings.

Based on the final pricing, the yield spread was 475bp over the yield on the benchmark 2.75% US Treasury maturing in February 2019, which was fixed at 2.922%. Initial price guidance had indicated a spread of 487.5bp plus or minus one-eighth, or in other words a range of 475bp-500bp.

But Brayan Lai, a credit analyst at French investment bank Calyon, argues that the deal was priced too tightly and failed to give investors sufficient yield premium to ensure strong secondary market performance. "Interpolating from the Hutchison dollar yield curve, the 10-year bonds should have offered a yield of 7.9%-8.0%, which would have given investors a premium that is necessary in this buyers' market. As it is, the bonds were even priced at a yield below fair value," he says. "But, Hutchison is such a well-known and well-regarded company, both in Asia and elsewhere in the world, and it is also a very savvy borrower in the capital markets, so it was able to get away with it," he adds.

Hutchison last sold dollar bonds in November 2003, raising $5 billion through a multi-tranche deal that is still the biggest issuance by an Asian company. 

One banker saw the new bonds trading at a spread of 466bp during New York hours; but late afternoon in Hong Kong they were quoted at 478bp-473bp, suggesting that, as Lai argues, there was little immediate upside for investors. By contrast, investors have enjoyed a 20bp-30bp spread tightening on recent Korean issues from Posco and the two state-policy banks, Korea Development Bank and Export-Import Bank of Korea.

Another banker familiar with the deal said that 51% of the bonds were placed in Asia, 35% went to US accounts and 13% to Europe. Fund managers took 43%, insurance companies and pension funds were allocated 16%, retail -- mostly in Hong Kong and Singapore -- took 15%, hedge funds 14%, banks 10% and 2% went to others. The total order book was $6.3 billion.

The proceeds from the Singapore-listed issue will go towards general working capital and for refinancing debt.

Moody's cut its outlook on Hutchison's credit rating to "negative" on April 1, pointing to worries about the company's profitability and strength of its financial ratios. The conglomerate, which has interests that include ports, property and telecoms, reported 2008 profits of HK$17.7 billion ($2.29 billion), which was 44% lower than the previous year. In March, Li said Hutchison faced "the most challenging environment in recent times" because of the global recession.