China Petrochemical Corporation (Sinopec) sold a landmark $6.4 billion multi-tranche bond on Wednesday morning, tapping both the dollar and euro markets for funding.
Rated Aa3/AA-, the Reg S/144A offering can be split into a $2.5 billion five-year bond, $1.5 billion 10-year note, $800 million 30-year tranche, as well as a €850 million three-year paper and €650 million seven-year bond, according to a term sheet seen by FinanceAsia.
For the dollar tranches, the five-, 10-, and 30-year offerings priced at Treasuries plus 125 basis points, 145bp and 152bp respectively, approximately 15bp to 28bp tighter than their initial price guidance areas.
As for the euro tranches, the three- and seven-year paper priced at mid-swaps plus 50bp and 80bp respectively, which is around their initial price guidance area.
Market sentiment improved immensely this week thanks to quantitative easing measures taking place in Asia and Europe. Furthermore, oil prices rebounded beyond the $50 per barrel mark, indicating a stabilising outlook for the commodity. The price of Brent crude was at $63 a barrel on Tuesday, up 40% from its January low of $45 a barrel and near its high for the year of $65, according to Bloomberg data.
These factors helped support Sinopec’s transaction, which stands as Asia’s largest ever dual-currency offering and the biggest bond deal from a Chinese state-owned enterprise, syndicate bankers said.
“A lot of central banks are easing their monetary policies, so there’s a lot of liquidity sloshing around,” said a source close to the deal. “Oil was plummeting in the beginning of the year, but it has rebounded slightly, which helped support market confidence.”
The People’s Bank of China cut the reserve requirement ratio by 100bp on April 19, releasing as much as Rmb1.5 trillion ($240 billion) of liquidity into the market, according to estimates in a Fitch report dated April 21.
Meanwhile, the European Central Bank completed the first stage of a trillion-euro economic stimulus programme, having met its monthly goal of buying some €60 billion worth of government and corporate debt up until April 3.
Sinopec’s latest bond pushes the volume of Asia ex-Japan’s bond issuance in the dollar-, euro- and yen-denominated space to an all time high. Year-to-date, there has been $72.6 billion worth of G3 issuance in the region, up 8.7% from last year’s level during the same period, according to Dealogic data.
Cheap thrill
Because of the much-improved market sentiment, Sinopec saw a good window of opportunity. The issuer launched the deal in Asia early Tuesday morning and priced it in US hours on the same day.
Thanks to the strong global investor demand, the Chinese oil and gas giant was able to price most of its tranches at negative to little new issue premium, according to a source familiar with the matter.
The five- and 30-year tranches were able to achieve that.
The nearest comparables for Sinopec’s latest five- and 30-year offerings was its own 2019 and 2043 bonds trading at a G-spread of 124bp and 169bp respectively, indicating 1bp worth of new issue premium for the five-year and negative new issue premium for the 30-year notes.
“This affirms the company’s position as one of the very top tier borrowers in Asia,” said the source, adding that on a net basis the issuer managed to cut overall funding costs.
As for the 10-year tranche, Sinopec had to pay around 6bp in new issue premium, given that its existing 2024 notes were trading at a G-spread of 139bp, added the source.
In secondary markets, the bonds are trading around reoffer price of 99.576, 99.022 and 100 for the five, 10- and 30-year respectively on Wednesday afternoon, according to Bloomberg bond data.
Proceeds of the bond will be applied to the general corporate purposes of its overseas businesses and to refinance existing indebtedness, according to the Sinopec’s bond prospectus.
Bank of China, Citi, Deutsche Bank, Goldman Sachs and HSBC were the joint global coordinators and bookrunners of the transaction. Other bookrunners include Bank of America Merrill Lynch, CCB International, DBS Bank, ICBC International, ING, JP Morgan, Mizuho Securities, Morgan Stanley, Societe Generale CIB and Standard Chartered.
