Korea Development Bank (KDB) and China South City Holdings executed two tightly priced bonds on Tuesday, facing off against a heavy new issue pipeline right behind them.
Bankers said sentiment was subdued after US investors returned from their long weekend and the overall market continues to digest the implications of Friday’s lower than expected non-farm payroll numbers.
This led to a lukewarm response for China South City’s Reg S offering, which had only garnered $840 million in demand just before the release of final price guidance.
"The final order book dropped slightly from its peak level, as some funds pulled their orders," one banker commented. "But the final result was fairly in line with what we were expecting given how the US jobs figures has bolstered the view that the Fed won't raise rate in September."
A second banker said inventors have now switched their focus to the European Central Bank’s monetary policy meeting this week. This may see result in an extension of its bond-buying programme.
"Investors are taking a wait-and-see approach given Fed related uncertainty and a backdrop of limited secondary market liquidity,” the banker stated.
B2/B/B rated China South City opened books for a $200 million five-year non-call three note at initial price guidance around the low 7% area.
Final pricing was fixed at 98.86% on a coupon of 6.75% to yield 7%, according to a term sheet seen by FinanceAsia.
The final order book closed at $500 million with 79 accounts. By geography, 92% went to Asia and 8% to Europe. By investor type, prviate banks took 85%, while fund managers and corporates accounted for 14% and 1%, respectively.
The closest comparable was the group’s outstanding $400 million January 2019 bond, which is callable in January 2017. This was yielding 6.5% on Tuesday according to one syndicate banker.
"The new transaction paid virtually no new-issue premium for investors," the banker added.
This does not bode well for secondary market trading given that every single high yield deal of the past few weeks is currently under water.
Far East Consortium’s 3.75% 2021 issue is yielding 3.917%, while Greenland’s 3.5% 2019 deal is at 3.72%, Road King’s 4.7% 2021 (call 2019) bond at 4.85% and worst of all, Fengui Leasing’s 7.875% 2019 deal at 9.215%.
In report published on September 6 Fitch said sales at Hong Kong-listed China South City’s trade and logistics business is slowing further because small-and-medium businesses are scaling down new investments. It also noted slower relocation demand, local government delays in completing transport networks and lower investor appetite for commercial properties.
Fitch expects the company’s leverage (measured by net debt/adjusted inventory) to hover around the 50% level over the next two years up from 37.8% in the 2015 financial year.
Joint global coordinators for the bond deal were UBS (lead left), Bank of America Merrill Lynch, Credit Suisse, while Citi, Deutsche Bank and HSBC were joint bookrunners.
KDB's 2016 encore
The Korean policy bank was also back on Tuesday with its second major dollar-denominated bond offering of the year. However, the Aa2/AA/AA- rated group was unable to build up the same level of demand as it did back in January when it was last in the market.
Then it achieved a $2 billion final order book for a $500 million five-year deal and $2.7 billion book for a $1 billion 10-year. This time round, it managed $1.4 billion for a $500 million three-year deal and $1.1 billion for a $500 million 10-year.
Sales desks believe the relatively poor reception to the new SEC-registered offering reflects a growing new issue pipeline from Korea and tight pricing. This was particularly the case on the 10-year tranche where the bank appears to have gambled on heavy onshore demand for longer-dated paper holding spreads firm during secondary market trading.
Both the three and the 10-year tranches were initially marketed around the low 70bp level over Treasuries, before the three-year was priced at 57.5bp over and the 10-year at 55bp.
A number of Korean credits have inverted yield curves, but this does not apply to KDB whose outstanding 3% March 2019 bond was quoted on a G-spread of 56bp on Tuesday, while its 3% January 2026 bond was at 60bp.
Distribution stats show that a total of 85 accounts participated in the three-year tranche with a split of 62% Asia, 24% Europe and 14% US. By investor type, funds took 34%, banks 27%, public institutions 21%, insurers 12% and other 6%.
The 10-year tranche had 89 accounts of which 89% were from Asia, 5% from Europe and 6% from the US. By investor type, insurers took 58%, banks 14%, funds 14%, public institutions 13% and other 1%.
Joint global co-ordinators were BNP Paribas, HSBC, JP Morgan, KDB Asia, Mirae Daewoo, Standard Chartered and UBS.
The story has been updated with final stats from first publication
