The Asian G3 bond markets returned from the Ching Ming public holiday on Tuesday to record their busiest day of the year with a quartet of issues.
From Singapore came a very rare US dollar-denominated offering from PSA Corp, plus a second dollar deal from Olam International.
Korea National Oil Corp (KNOC) topped off the day's dollar issuance with a dual tranche transaction, while CK Hutchison Holdings also executed a dual tranche offering in euros.
Of the three dollar-denominated deals, Aa2/AA-/AA- KNOC recorded the strongest order book thanks to a very strong bid for longer-dated paper from Korean institutions, which are likely to be active buyers in the secondary market.
Its $1 billion offering attracted a final order book of $3.6 billion, according to syndicate bankers, with a skew to the 10-year tranche, which attracted $2 billion of the total.
By contrast, one-notch higher rated PSA Corp recorded a final order book around the $1 billion level, while unrated Olam International had a peak order book of roughly $650 million and final order book of $450 million.
PSA International
The Temasek-linked company (TLC) provided the day's rarest issuer and, common to all TLCs, pushed hardest on pricing. The Aa1/AA rated group was last in the dollar bond markets in 2010, although its 50% owned Turkish operator Mersin Uluslararasi Liman Isletmeciligi raised $450 million in 2013.
The main benchmark was a second TLC, Singapore Power, which tapped the bond markets for $700 million last November. That 3.25% 2025 deal has performed extremely well for investors since then and one of their key considerations will be how much of a rally is left.
The Aa2/AA rated deal has risen from an issue price of 99.754% to a cash price of 105.18% on Tuesday, equating to a yield of 2.63%, or 90bp in G-spread terms.
Syndicate bankers said the Treasury curve between November 2025 and April 2026 is worth no more than 1bp to 2bp, which means PSA's new 10-year deal has priced about 8.5bp through Singapore Power on a like-for-like basis.
Final pricing was fixed at 99.107% on a coupon of 2.5% to yield 2.602% or 87.5bp over Treasuries. The deal also has a call option six months before maturity.
"Pricing inside Singapore Power was the key objective and PSA achieved it," said one banker.
The syndicate's job was made slightly difficult because of PSA's existing 3.875% 2021 bond, which was trading Tuesday at 107.89% to yield 2.151%, or 95bp on a G-spread basis.
Extending out the curve to the 2026 level adds a further 15bp, bringing fair value for the new deal somewhere around the 110bp level.
However, bankers said it is very thinly traded and PSA deserves a pricing premium over Singapore Power because it has a one-notch higher rating from Moody's, although the same rating from Standard & Poor's.
The other main difference between the two deals is Singapore Power's 144a tranche, which brought in more US investors and led to a roughly even distribution split on its $1.4 billion order book.
By contrast, bankers said that 83% of PSA's Reg S deal went to Asia, with 17% to Europe. It attracted a peak order book of $1.4 billion before dropping back to $1 billion after price guidance was revised down from 105bp over Treasuries.
A total of 53 accounts participated with 40% going to banks, 32% to funds, 17% to insurance funds and 11% to retail.
Proceeds are being used to redeem a $500 million issue, which matures in June 2016.
Bankers added that one further factor prompting investor interest is the recent softening of US Treasury yields following dovish comments by US Federal Reserve Chairman Janet Yellen. During New York hours on Tuesday, 10-year Treasuries were at the 1.72% level, some 16bp lower than they were a month ago.
"It's definitely having an impact at the 10-year end of the curve," said one banker. "Investors feel much more re-assured there won't by any pressure on Treasury prices and believe rates will stay lower longer."
KNOC
This factor also spurred demand for KNOC's $1 billion Reg S/144a issue, which was highly unusual since it incorporated two tranches with different maturities but identical pricing over Treasuries.
A $500 million five-year tranche was priced at 99.929% on a coupon of 2.125% to yield 95bp over Treasuries.
It attracted 115 investors and distribution of 55% to Asia, 23% to Europe and 22% to the US. By investor type, fund managers took 51%, banks 20%, private banks 3%, insurance and pension funds 19% and central banks 7%.
A $500 million 10-year tranche also came at 95bp over Treasuries on an issue price of 99.45% and coupon of 2.625%.
This attracted 102 investors with a split of 82% to Asia, 14% to Europe and 4% to the US. By investor type, asset managers took 30%, banks 7%, private banks 2%, insurers and pension funds 56% and central banks 5%.
When the two deals were initially marketed, the five-year was pitched at 115bp over Treasuries and the 10-year at 120bp over.
Final pricing reflects the inversion of the Korean yield curve, which has been distorted by heavy buying from Korean life insurance and pension funds at the 10-year point.
They also said both deals priced flat to KNOC's theoretical secondary market curve.
The group has a $500 million 2.75% 2019 bond outstanding, but bankers said very few dealers are making a market in it so investors benchmarked pricing against Korea Midland's $300 million 2.5% June 2021 deal. This was yielding 2.175% on Tuesday.
Where the 10-year was concerned, they benchmarked against KNOC's existing $600 million 3.25% October 2025 deal, which was priced last September. This has also performed well and was trading Tuesday at 105.39% to yield 2.598% or 94bp on a G-spread basis.
KNOC has quite a few bonds maturing over the coming months according to S&P Global Market Intelligence figures. This includes a CHF325 million deal in May, an €100 million deal in May, a $1 billion deal in October and HK$637 million issue in December.
Olam
The final dollar deal of the day came from unrated Olam, which has been majority-owned by Temasek since 2014.
Since then the group has undertaken a strategic review to bring its financials more in line with other TLCs by divesting non-core assets, optimising its balance sheet and focusing on leadership positions in niche commodities businesses.
The agri-business has not been an investor favourite of late but bankers said it is a popular credit with Singaporean private banking investors because of the Temasek halo.
Initial pricing was pitched at the 4.65% level before the $300 million five-year Reg S deal was priced at par on a coupon of 4.5%.
Benchmarking the deal is complicated by the fact that two comparable deals have similar structures but are trading at widely diverging levels.
Olam has a $250 million 7.5% August 2020 bond outstanding, which was trading Tuesday at 110% to yield 4.91%. Using this bond as the main benchmark, bankers estimated fair value would fall around the 5.02% level.
However, the group also has a $300 million 4.5% February 2020 bond outstanding and this was trading Tuesday at 101.375% to yield 4.11%.
Using this bond as the main comparable, fair value comes in around the 4.375% level after adding 19bp on the curve for the one-year maturity extension according to syndicate bankers.
When Olam was last in the market, it built up an order book of $550 million and placed paper with 84 accounts of which 70% comprised private banking clients. Bankers added that while private banking was still strong in the new deal, Olam has been able to push further into the institutional investor base.
As a result allocations saw 57% placed with private banks, 27% with fund managers and 16% banks. A total of 65 accounts participated with a split of 87% Asia and 13% Europe.
Proceeds are being used to refinance existing debt. However, the group is in the process of closing a $275 million M&A deal for Nigeria's Amber Foods and CEO Sunny Verghese has said Olam is interested in making acquisitions of up to $2 billion to scoop up assets while commodity prices are low.
Last October, the group completed the €1.2 billion acquisition of ADM's cocoa arm, making Olam one of the world's top three suppliers.
At the end of 2015, net gearing stood at 1.94 times. However in its online presentation Olam's 2016 objective is to keep net gearing below two times.
Joint global co-ordinators for Olam's bond were: Credit Suisse, DBS and HSBC.
Joint global co-ordinators for PSA's bond were DBS and Deutsche Bank.
Bookrunners for KNOC's bond were: Citi, Credit Agricole, Goldman Sachs, HSBC, JP Morgan and KDB.
