Shanghai Electric sold a capped $500 million five-year bond on Thursday, its first ever in the global debt markets, using the proceeds for offshore acquisitions and general corporate purposes.
The Reg S-registered offering priced 25bp tighter than its initial price offering of Treasuries plus 165bp area, indicating buoyant demand for high-quality names from China, according to sources close to the deal. Shanghai Electric is rated A2/A/A by Moody’s, Standard & Poor’s and Fitch respectively.
The bond, which has a yield of 3.045% and coupon of 3%, launched upon the completion of its global roadshow in Hong Kong, Singapore and London, which began on Monday and comes off the back of the corporate’s active acquisition and project-driven spree.
“We view Shanghai Electric’s increasing business diversity, particularly its expansion into gas turbine and wind turbine products, as an added advantage,” Huma Shi, credit analyst at S&P said, adding that such diversity partly offsets risks plaguing the company.
The risks include the company's slow growth and pricing pressure from its core coal-fired power equipment, Shi added. Other risks include execution risk associated with overseas expansion in developing markets, and intensifying competition in the new energy segment.
In May, Shanghai Electric paid €400 million ($555 million) to Italian sovereign private equity fund Fondo Strategico Italiano for a minority stake in Ansaldo Energia, Italy’s largest supplier, installer and service provider for power plants and components.
The Chinese company acquired 40% stake in the Italian company and they will start two joint ventures to manufacture gas turbines for Asian markets, and create a research and development centre in Shanghai.
Additionally, Shanghai Electric, along with other Chinese power companies like Dongfang Electric and China Machinery Engineering have been shortlisted as potential candidates for Bosnian state-run brown coal mine operator Bonavici's upcoming energy project.
Banovici issued a tender on Wednesday seeking consultants to help it choose a strategic partner to fund and build a 300 megawatt coal-fired power plant. The mine operator has set a September 4 deadline.
Comparables
Some of the closest comparables for Shanghai Electric’s new offering include Sinochem's outstanding notes maturing in 2019, which were trading at Treasuries plus 136bp, according to sources familiar with the matter
Other comparables include China Guangdong Nuclear Power and Cofco’s existing bonds both maturing in 2018, which were trading at Treasuries plus 115bp and 116bp respectively prior to pricing, sources added.
The deal recevied a total orderbook of $3 billion from 145 accounts, of which nearly half of the subscribers were from banks and agencies, a source notes. Fund and asset managers invested in 23% of the bond, retail investors 22% and insurers 10%.
Asian investors subscribed to 51% of Shanghai Electric's offering, while the rest went to European investors.
Shanghai Electric manufactures thermal, nuclear and wind power equipment, power transmission and distribution equipment, elevators, air compressors, automation systems, printing machines, and machine tools. It is one of the three major power equipment suppliers in China.
In 2013, it recorded Rmb94.7 billion ($15 billion) in sales, of which Rmb79 billion came from its 58%-owned subsidiary — Shanghai Electric Group Company. It is 100% owned by the State-owned Assets Supervision & Administration Commission, under the Shanghai municipal government.
Goldman Sachs, Deutsche Bank and JP Morgan were the joint global coordinators and bookrunners of Shanghai Electric’s bond. Other bookrunners include Barclays, BNP Paribas, Guotai Junan, Huatai Financial and ICBC International.
