Bond volumes for G3 Asia ex-Japan will finish the year strongly as issuers from the region flood debt capital markets in the next two weeks, hoping to complete their financing programmes before the Christmas holiday.
China State Shipbuilding announced a roadshow today, joining a number of other issuers who have announced similar activities in recent weeks.
The Chinese shipbuilding company has mandated China Construction Bank International, Bank of China and Barclays as joint global coordinators to arrange a series of investor meetings in Singapore and Hong Kong, commencing December 3, according to a source.
A US dollar-denominated Reg S bond offering by CSSC Capital 2013, the financing arm for China State Shipbuilding, credit-enhanced with the benefit of an irrevocable standby letter of credit from CCB Hong Kong branch and a keepwell deed, may follow subject to market conditions.
“It’s going to be a busy December,” said the source close to the potential deal. “This week is going to be busy, next week we will have some transactions going through, and then we are going to scale down substantially after that.”
There are six or seven issuers that have either completed roadshows or are still in the middle of them, and are monitoring the markets for a potential issuance.
As a result, a Singapore-based syndicate banker estimates that bond markets could still see around $3 billion-$5 billion worth of issuance this month, taking yearly volumes in the G3 Asia ex-Japan space to record highs, 5%-10% higher than last year.
In spite of the summer lull, year-to-date G3 Asia ex-Japan DCM volume has already reached $140.5 billion, slightly higher than 2012’s yearly volume of $139.6 billion, according to Dealogic data. Asia’s G3 markets saw approximately $3.3 billion, or 10 transactions, come to market last December.
Investors reduce risk
However, debt capital market sentiment is threatened by several factors. Firstly, investor sentiment is gradually waning as they look to close their books and minimise taking positions towards year-end, some experts highlight.
“Typically what you see at this time of the year is people selling down risk in terms of managing portfolios,” said a Hong Kong-based syndicate banker. “Liquidity in secondary markets and being able to trade out of their position is probably becoming a little more limited, particularly as private banks begin to step down for the year.”
As a result, experts believe the average ticket size of deals to come in the next few days will be much smaller than usual – less than the benchmark $500 million.
For example, Xinyuan Real Estate – a China-based residential property developer that was supposed to raise a dollar benchmark high-yield bond – raised $200 million last Friday. The five-and-a-half year note with a callable option in the third year priced at 13%, which is about its initial price guidance of low- to mid-13%, according to a term sheet seen by FinanceAsia.
For issuers that want size, it is likely they will have to pay a slight premium to investors. Alternatively, they could postpone the issuance to January, which is normal, says a Hong Kong-based head of syndicate.
“Not everyone needs $500 million, but it really depends on what they need and what they’re prepared to pay,” he said. “Some people do meetings and if they don’t get the deal done for whatever reason then they will just roll it to January.”
The second factor is that Treasury 10-year notes is trading at almost a two-month high on speculation that the US jobs report this week will be strong enough to lead the Federal Reserve to vote to trim bond purchases as soon as December.
“We have had a good year so far, and a few key volatility points coming up over the course of the period,” said the Hong Kong-based syndicate banker. “People don’t probably see too much upside in adding to their portfolio.”
Benchmark 10-year yields rose 1bp to 2.74% on November 30. The yield has climbed from 1.76% on December 31, though it is still below the average of 3.5% during the past decade, according to Bloomberg data.
Barclays, Bank of America Merrill Lynch and Morgan Stanley were the joint bookrunners of Xinyuan’s deal.
Issuer roadshows
On November 29, China Merchants Land hired Industrial and Commercial Bank of China (Asia), BofA Merrill and DBS for a series of fixed-income investor meetings in Singapore and Hong Kong, starting today, according to sources. A dollar-denominated Reg S bond offering, credit-enhanced by an irrevocable standby letter of credit from ICBC Asia, may follow subject to market conditions.
Similarly, Baoshan Iron & Steel (Baosteel), China’s biggest steelmaker, has hired Bank of China, Deutsche Bank, HSBC and ICBC International to also arrange a series of fixed-income investor meetings in Singapore and Hong Kong, starting today. A US dollar-denominated Reg S bond offering by Bao-Trans Enterprises, a wholly owned subsidiary of the company, may also follow.
Bharti Airtel, India’s largest telecoms firm, on November 27 launched an international roadshow for a benchmark bond offering as part of its plan to raise nearly $1 billion through euro bonds, according to bankers. Barclays, BNP Paribas, JPMorgan, Standard Chartered and UBS are joint bookrunners and lead managers of the issue.
Pacnet, a Hong Kong-based global telecoms service provider, has completed a global roadshow, which began on November 27, and has met investors in Singapore, Hong Kong and London. DBS, Deutsche Bank, Goldman Sachs and Standard Chartered have been mandated for a planned 144a/Reg S dollar-denominated senior secured sale of notes.
China XD Plastics has also completed its roadshow, which started on November 18 and was arranged by HSBC, Morgan Stanley and UBS. A 144a/Reg S note offering may follow.
Also announced on Monday; Agricultural Bank of China Hong Kong has hired its own team as well as ABC International, BofA Merrill, Citi, DBS, Goldman Sachs, JPMorgan and Standard Chartered for a proposed inaugural offering in the dollar space. The Reg S senior notes will be issued under its $5 billion medium-term note programme.
