Shanghai Electric made a stunning eurozone debt market debut late on Tuesday, successfully selling a €600 million ($669 million) five-year bond as it met with strong demand from yield-starved investors.
Rated A2/A/A, the Shanghai-based power generation firm priced the Reg S-only note at mid-swaps plus 80 basis points, 15bp tighter than the initial price guidance area, according to a term sheet seen by FinanceAsia.
Shanghai Electric, which raised the bond via its subsidiary Shanghai Electric Newage, expanded the offering from an original target size of €500 million, spurred by overwhelming interest from European investors, a source close to the deal said.
Ultra-low, and in some cases negative, borrowing rates in Europe — a product of the European Central Bank’s €1 trillion bond buying spree — have forced investors to pile into assets from Asian issuers in the hunt for better returns. That, in turn, has encouraged foreign issuers to tap the market for cheap funding.
The 10-year German bund yield, for example, fell 5bp to just 0.6% on Tuesday, according to Bloomberg data.
Shanghai Electric joins the wave of Chinese borrowers that have already taken advantage of rock-bottom euro borrowing costs, propelling euro-denominated offerings from Asian issuers to new heights.
According to Dealogic data, Asian euro-denominated bond volumes — translated into dollars terms — have reached $623.1 billion in the year-to-date period, which is almost double the volume recorded during the same period of 2014.
Eight of the 12 euro debt instruments sold this year are from Chinese issuers, including China Petrochemical Corp (Sinopec) and State Grid Corp of China.
Comparables
The nearest comparables for Shanghai Electric’s bond includes A3/BBB+ rated Beijing Enterprises's and A2/A/A+ rated Beijing Infrastructure Investment’s outstanding euro-denominated notes maturing in 2020 and 2018, respectively. These traded at mid-swap spreads of 114bp and 77bp, respectively, prior to the announcement of the deal, said a second source familiar with the transaction.
Other comparables include Aa3/AA- rated Sinopec’s existing euro-denominated 2018 and 2022 paper, which traded at mid-swaps plus 42bp and 74bp, respectively, the source added.
The proceeds of the transaction will primarily be used by Shanghai Electric to refinance the €400 million bridge loans taken out by the company to fund the acquisition in 2014 of a 40% stake in Ansaldo Energia, an Italy-based gas turbine manufacturer, according to the issuer’s prospectus.
The remainder will be lent to Shanghai Electric Hong Kong, a unit of the guarantor Shanghai Electric Group, and used for mergers and acquisitions activity or to repay debt, buy products manufactured by the group for resale to customers, or to purchase equipment or raw materials.
Bank of China, Bank of China Hong Kong, CCB International, Deutsche Bank and Morgan Stanley are the joint global coordinators and bookrunners of the transaction. Other bookrunners include ABC International, Bank of China International, Haitong International, Huatai Financial Holdings Hong Kong, Intesa Sanpaolo, JP Morgan, and Societe Generale.
