Chinese technology giant Lenovo returned to the international bond market on Thursday, issuing a $500 million senior bond and an $850 million perpetual non-callable five-year bond a day before the release of US non-farm payroll statistics.
The two Reg-S sales got more than $3 billion of orders at the peak level before Lenovo, the world’s biggest PC maker, released final price guidance, according to syndicate bankers familiar with the deal.
The demand for the deal was less than what rival Huawei achieved with its $1.5 billion bond in February, when the telecoms and smartphone group captured more than $10 billion of demand. But against a tepid secondary backdrop, bankers said it was still a good result for Lenovo.
“The level of interest captured by Lenovo was quite impressive under the current market conditions,” a syndicate banker running the deal said. “The sell-off in Asian high-yield bonds continued yesterday as a result of falling oil prices and a rout in government bonds ahead of the US jobs report on Friday.”
The jobs figures are expected to be strong, supporting the US Federal Reserve's view that the labour market is buoyant enough for another rise in interest rates when central bankers hold a two-day meeting next week.
Lenovo, which pushed ahead with its deal without an international credit rating, went out with initial price guidance of 190bp over US Treasuries for the five-year bond. It then revised that to 180bp over Treasuries, where the deal ended up being priced.
Final pricing for the $500 million March 2022 bond was fixed at 99.806 with a coupon of 3.875% to yield 3.918%, or 180bp over Treasuries, according to a term sheet seen by FinanceAsia.
Syndicate bankers said the closest comparable was Huawei’s 3.25% Febuary 2022 $1 billion bond, which was trading at a G-spread of 136bp.
“I think Lenovo priced the new five-year bond at fair value, leaving no concession to investors,” a Hong Kong-based investor said.
Bankers initially pitched the perpetual deal in the 5.5% area before revising guidance to 5.375%, where the deal ended up closing. Final pricing of the hybrid security was fixed at par to yield 5.375%, a term sheet showed.
Lenovo included a call option after five years, as well as a 300bp step-up that gave investors comfort. "The extension risk is limited," said the Hong Kong-based fund manager.
The two bonds both fell slightly in secondary trading. The senior note was quoted at 180/183bp over US Treasuries on Friday, while the perpetual bond dropped as low as 99.375 before recovering to par, a syndicate banker said.
Hong Kong-listed Lenovo, which acquired the struggling Motorola handset business from Google for $3 billion in 2014, posted a 67% decline in profits to $98 million in the final quarter of 2016, falling well short of the consensus $145.9 million forecast by analysts. The company admitted it faced sizeable challenges in its main business lines: data centres and mobile devices.
Lenovo plans to use some or all of the new proceeds to repay the debt incurred in the Motorola acquisition, as well as for working capital and general corporate purposes.
The global coordinators of the five-year senior note were ANZ, BNP Paribas, Bank of Communications Hong Kong branch, China Construction Bank Asia, Citi and DBS. Barclays, Bank of America Merrill Lynch, Crédit Agricole CIB, Mizuho Securities, Morgan Stanley, MUFG, Societe Generale and Standard Chartered were bookrunners.
The global coordinators of the perpetual bond were BNP Paribas, Citi, DBS and Morgan Stanley, while ANZ, Barclays, Bocom Hong Kong, BoAML, China Construction Bank Asia, Crédit Agricole CIB, Mizuho Securities, MUFG, SG CIB and Standard Chartered were bookrunners.
