ICBC Leasing returned to the international bond markets on Tuesday with a second dollar deal of the year that demonstrated how investors appear ready to pile into deals even if they offer no value relative to secondary market levels.
The A2/A/A rated credit priced a $1.5 billion three-tranche offering during the New York day after amassing a final order book of $6 billion. This was split roughly $1 billion for a three-year floater, $2 billion for a three-year fixed-rate tranche and $3 billion for a five-year fixed-rate tranche.
The transaction had exactly the same structure as a previous outing in March, incorporating a keepwell and liquidity support deed from ICBC Leasing to the issuer ICBCIL Finance Ltd. The major difference was the addition of a 144a tranche and bankers said about 25% of the three-year deal was placed with US accounts and roughly 15% of the five-year.
"I was quite surprised how the book continued to grow when the guidance was tightened," one banker commented. "We revised it when the US opened and had an order book of $6.5 billion at that point. Some Asian and European accounts fell away but US ones still came in even though there was no pick-up to secondary market levels."
The three-year tranche for the A-/A rated offering had initially been marketed at 195bp over Treasuries and its Libor equivalent, plus 210bp over Treasuries for the five-year. This was then tightened to 2.5bp either side of 175bp over Treasuries for the three-year and the same again relative to 190bp over Treasuries for the five-year.
Final pricing saw a $300 million three-year FRN priced at 167bp over Libor and a $500 million three-year fixed-rate deal priced at 99.372% on a coupon of 2.6% to yield 172.5bp over Treasuries. The $700 million five-year note was priced at 98.761% on a 3.2% coupon to yield 187.5bp over Treasuries.
ICBC Leasing's $1 billion transaction in March provides a clear benchmark since it also comprised three- and five-year tranches. During the Asian trading day on Tuesday, the 2.625% March 2018 bond was bid on a G-spread of 173bp and the 3.25% March 2020 bond on a G-spread of 188bp.
This means both tranches have priced half a basis point through outstanding paper despite the eight-month maturity extension.
Money to invest
So why did investors participate? Bankers said the Asian credit markets remained supported by limited new supply in contrast to the US where issuance has picked up more markedly.
"I think investors just have money to invest and they want to put it to use," said one banker. "There's good momentum to support secondary market levels even if pricing is very tight and I really think this deal will give potential issuers the confidence to tap the market."
This was backed up by sales desks, which are reporting stronger buying activity from retail investors and assets managers, plus a slow but noticeably tightening trend in Chinese investment grade credit propelled by less negative economic data.
Bankers also said the Chinese leasing sector is an attractive proposition because it offers a pick-up to the Chinese banking sector.
Chinese investors in particular like state-owned, single-A rated deals, which have credit support. In ICBC Leasing's case there is a change of control put if ownership falls below 67%.
China is now the world's second largest leasing market, growing by a compound annual growth rate of 111% since 2007. In its roadshow, ICBC Leasing argued that it still has a long way to go given that the sector's domestic penetration rate stands at only 3.1% compared to 22% in the US and 31% in the UK.
Equity capital market bankers are also hoping it provides them with a bonanza of initial public offerings in 2016. Both BOC Aviation and CDB Leasing are busy readying flotations on the Hong Kong Stock Exchange.
According to recent figures from Flightglobal ACAS, five Chinese groups now figure in the top 10 global aircraft leasing companies led by BOC Aviation, and followed by Aviation Corp of China (AVIC), ICBC Leasing, CDB Leasing and Bohai Leasing.
Joint global co-ordinators for the bond are: ICBC, Goldman Sachs, Morgan Stanley, Citi and Bank of America Merrill Lynch. Joint bookrunners are ANZ and Wells Fargo.
