Chinese fertiliser company Sinochem (Hong Kong) Group yesterday closed its Rmb3.5 billion ($528 million) inaugural offshore renminbi bond.
The so called "dim sum" bond was upsized from an expected Rmb3 billion to meet strong demand from investors who put in total orders of Rmb9 billion. The three-year Reg-S only bond priced at a yield of 1.8%, at the tight end of the 1.85% +/-5bp final guidance. The initial guidance was 1.75% to 2%.
Deutsche Bank was the global coordinator and a joint bookrunner with Citic Securities.
The deal was the company's second foray into the offshore bond market following its $2 billion dual-tranche bond in November last year, which was the largest ever international bond from a Chinese issuer.
Prior to the pricing, Sinochem (HK)'s renminbi-denominated bonds were expected to gather healthy support from investors who view the credit as a quasi sovereign play. Investors were expected to focus on the PRC government's implied support for the company rather than the company's financials -- which analysts deem to be weak.
Sinochem (HK) is rated Baa1/BBB+/BBB+ (/Moody’s/S&P/Fitch).
The private company is 98%-owned by the Sinochem Group, which in turn is wholly owned by the State-owned Assets Supervision and Administration Commission of China's State Council.
According to a research note by Nomura analyst Jacob Samuel yesterday, based on the price whisper of high 1% to 2%, Sinochem (HK)'s bonds looked attractive compared to China Resources’ renminbi bonds due 2013, which are rated two notches below at BBB- and which were quoted at a yield of 1.9%/1.7%.
Sinochem (HK)’s cost of funding was cheaper in the offshore renminbi bond market compared to its cost of funding onshore. It is believed that the company will keep the funds raised in Hong Kong and use them for general corporate purposes.
The deal received robust support from investors despite volatile market conditions over the past few days. Late Monday, risk aversion rose sharply amid concerns that Portugal and Spain would require financial assistance. This pushed the iTraxx Asia Investment Grade Index wider to 118bp on Monday. Both sovereigns will hold debt auctions this week.
However, markets staged a relief rally yesterday after Japan’s finance minister said the government would buy bonds issued by the European Financial Stability Facility to support Ireland’s bailout. The iTraxx Asia Investment Grade Index opened tighter yesterday morning at 114bp/115bp and tightened further to 111bp/112bp late yesterday afternoon.
Nonetheless, investors have been on edge. “It’s a bit nervy at the moment. There has been a relief rally today with Japan saying they will take up European debt,” said one credit trader yesterday afternoon. “But market sentiment is quite fragile and we’re definitely not going to be loading up on bonds,” he added.
Also in the market yesterday was cotton and spandex supplier Texhong Textile's five-year non-call-three. The Reg-S/144a bond was expected to price late last night and raise about $200 million. The bond had drawn a strong orderbook in excess of $1 billion last night, leading to expectations that it could price at the tight end of the 7.625% to 7.75% guidance. Deutsche Bank is sole bookrunner.
Chinese property company Evergrande Real Estate is expected to price its dual-tranche synthetic offshore renminbi benchmark on Thursday. The whisper on the three-year bonds yesterday was mid-7%, while the five-year bonds were suggested at low- to mid-9%. The bonds will be denominated in renminbi, but settled in US dollars.
The pipeline of issuers continues to grow with new names trickling in each day. The latest issuer to jump on the bandwagon is Rural Electrification Corp (REC), which is expected to be the first Indian issuer to tap the US dollar market this year.
The public sector enterprise will start roadshows in Singapore on Thursday. It will move on to Hong Kong on Friday and London on Monday. A Reg-S bond is expected to price following the roadshows. Credit Agricole CIB, Royal Bank of Scotland and Standard Chartered Bank are joint bookrunners. REC is rated Baa3 (stable) by Moody's and BBB- (stable) by Fitch.
Elsewhere, Singapore state investment agency Temasek Holdings is rumoured to be holding global investor update meetings. HSBC, Standard Chartered Bank and UBS are handling the meetings.
