Sound Global became the first Chinese company to issue a debut high-yield dollar bond this year, to the surprise of rivals, who were expecting the deal to get pulled.
Demand for the $150 million five-year bond reached $340 million — hardly roaring — and it seemed as though the company struggled. Sound Global had held a non-deal roadshow a few months back, went silent and then returned with a second roadshow late July. On Monday night, it seized a window to tap the market, making it the first wastewater treatment company to issue a bond in Asia.
Earlier this year, a handful of Chinese high-yield issuers had unsuccessfully attempted to issue debut bonds. Car dealers China Zhengtong Auto and Baoxin Auto both attempted to print debut deals and came out with guidance, only to pull them back in May. China Tianrui Cement had mandated Deutsche Bank as sole bookrunner for a dollar bond, but after holding roadshows, did not make it to the market. It subsequently decided to issue a dim sum bond — but that, too, has not materialised.
Some suggest that Sound Global’s success is a sign that conditions have improved. “The criticisms that investors had for China Zhengtong Auto and Baoxin Auto — worries about the company being small, and potential corporate governance issues, hold true for Sound Global, so it’s surprising that the deal got done,” said one banker. “It makes you wonder, if those deals returned now, whether they may also get done. It’s all touch and go and issuers have to be prepared to seize opportunities as and when they appear.”
At $150 million, the issue will not be very liquid — and rivals commented that the size fell short of the usual high-yield benchmark. Yet, in the context of volatile markets, it was an accomplishment of sorts. “Last week was an extremely volatile week,” said one person familiar with the deal. “We saw indices down 3% to 5% some days.”
The five-year bond, which has a call option after the third year, priced at a yield of 12%, at the tight end of the 12% to 12.125% final guidance. The bonds were reoffered at 99.54 and the coupon was 11.875%. In secondary trading, the bonds were bid at 99.625, slightly above the reoffer. The issue is rated B1/B+ (Moody’s/S&P). Deutsche Bank and HSBC are joint bookrunners.
There was speculation that Sound Global crossed the line with help from friends and family. However, fund managers were allocated 72% of the deal — not a small proportion — banks 2% and insurers 2%. Private banks were allocated 24%, which was not particularly high compared to Shui On Land’s recent $400 million bond (of which private banks were allocated 60%) and Jababeka’s $175 million bond (of which 68% went to private banks). Asian investors were allocated 70%, Europe 17% and offshore US 13%. A total of 75 accounts participated.
Asia’s high-yield market has been off to a slow start — as many investors grapple with concerns over corporate governance issues. “China high-yield is still a cautious place to tread at the moment,” said another banker. Late last year, high-yield bonds were sold off heavily, down to 60-70 cents on the dollar.
With the renminbi no longer a one-way bet, Chinese borrowers are also wary of paying hefty coupons for dollar funding. “It used to be that Chinese companies were willing to pay a 10% coupon and assume that the renminbi would appreciate against the dollar, so their costs would go down, but now for the first time, many borrowers are talking about forex volatility,” said a banker.
ICBC taps dim sum market
Industrial and Commercial Bank of China (ICBC) was in the market with a three-year dim sum bond on Tuesday. The deal was marketed in the area of 3.15% and this was revised to 3% to 3.1% on the back of a strong Rmb4 billion book at 5pm Hong Kong time. The bonds priced to yield 3%, at the tight end of the range and raised Rmb1 billion ($157 million)
ICBC Asia, ICBC International, HSBC and Nomura were global coordinators and bookrunners. Goldman Sachs, Bank of Communications (Hong Kong) and Bank of Communications International were also bookrunners.
Comparables included the China Eximbank 2015s, which were yielding 2.87% and the China government bonds maturing 2015, which were yielding 2.3%.
ICBC’s bond came 20bp inside of Chinese Construction Bank’s three-year certificate of deposit, which was yielding 3.2%. Although both are considered senior bonds and rank on par, ICBC is a public deal and, hence, a more liquid issue. Recently, a number of dim sum bonds have priced inside their CDs amid concerns of further CD supply. For instance, when China Development Bank priced its three-year bond at 2.95%, its outstanding CDs were yielding slightly over 3%.
ICBC is rated A1/A/A, but its dim sum bond was unrated.
