A unit of China National Cereals, Oils and Foodstuffs Corporation (Cofco) raised a $1 billion dual-tranche senior fixed-rate bond amid jittery market conditions and increased speculation that the US Federal Reserve could reduce its bond-buying programme in December.
The issue from Prosperous Ray, launched on Tuesday morning and evenly split into the five- and 10-year space, caught a good window, allowing bankers to tighten from an initial guidance of about 200bp and 240bp above Treasuries respectively to a final guidance of 175bp and 220bp over Treasuries, said a source familiar with the situation.
However, the source admits market conditions got shakier overnight when the US markets opened as the country’s services gauge, which topped estimates, stoked speculation the Fed will cut stimulus before year-end.
Despite the market uncertainty, Cofco was able to price its five-year tranche at the final guidance, while the 10-year tranche tightened 5bp to Treasuries plus 215bp.
“There have been headlines about the FOMC [Federal Open Market Committee] being a little bit more hawkish than expected last week due to better-than-expected data,” said the source. “But going into yesterday, we had quite a stable session with iTraxx opening a touch tighter and the US closing in the green the day before. Cofco caught a good window yesterday morning.”
The closest comparables for the five-year tranche was China Guangdong Nuclear, which was the most recent state-owned enterprise (SOE) from the five-year space. It was trading around Treasuries plus 225bp when the deal was being priced. For the 10-year note, investors were looking at China Railway and Beijing Enterprises’ existing notes, which were trading in the low-200bp above Treasuries on a curve adjusted basis.
“They priced quite aggressively on the five-year versus the most recent SOE issuance and very aggressively on the 10-year as well,” said the source.
Cofco’s five-year tranche received an order book of $2.5 billion from about 225 accounts, while the 10-year received $2.2 billion from 200 accounts, according to a term sheet seen by FinanceAsia. Asian investors ploughed into the five- and 10-year tranches, accounting for 81% and 88% respectively, while the rest went to European investors.
Financial institutions and asset and fund managers subscribed to a bulk of the five-year tranche, accounting for 42% and 37% respectively. Meanwhile, for the 10-year tranche, insurance companies as well as asset/fund managers participated in the bond, at 46% and 30% respectively.
In the US, service industries unexpectedly accelerated in October even after the 16-day partial government shutdown last month, as the Institute for Supply Management’s US non-manufacturing index rose to 55.4 from 54.4 the prior month. The data were released on Tuesday.
Along with US Treasuries (USTs), the secondary performance of Cofco’s five- and ten-year tranches widened to 5bp and 8bp respectively, notes a syndicate banker. Benchmark 10-year yields rose 7bp to 2.67% on Tuesday, according to Bloomberg Bond Trader data.
The 10-year yield has risen 17bp in the past five days and reached the highest level since October 16.
HSBC, JPMorgan and UBS were global coordinators and bookrunners of Cofco’s deal. Other bookrunners include BOCI, Deutsche Bank, Citic Securities, ICBC Asia and Standard Chartered.
