Chinese issuers dominated Asian bond supply at the end of last year. China’s lengthy bond approval regime was the main cause, as issuers rushed to market before their approvals expired and they were forced to go back to regulators for permission once again.
The start of the year has been predictably slower in terms of Chinese supply, with just two deals before Wednesday. But Taikang Insurance Group proved able to come quickly to the market, selling an $800 million five-year bond on Wednesday. And despite the risk of over-supply from Chinese issuers before Christmas, it got a clear welcome from investors.
The company managed to price the deal just inside where bankers and analysts estimated fair value, one of several issuers that managed to pull off impressive pricing this week.
The bookrunners set initial guidance for the bond at 190bp over Treasuries, before narrowing that to 2.5bp each side of 170bp. They ended up pricing the deal with a spread of 168bp. The January 2022 deal was fixed at 99.678 with a coupon of 3.5%, according to a term sheet seen by FinanceAsia.
'Issuer-friendly market'
Bankers said the best comparables for the bond were China Taiping's outstanding 4.125% $300 million November 2022 note and Sunshine Life's 3.15% $700 million April 2021 deal. The former was trading at a spread of 177bp over US Treasuries when the new bond launched, while the latter was offering 184bp over Treasuries. That implied Taikang's bond came inside fair value, according to bankers and analysts.
Taikang has a stable A- rating from Fitch, although the bond is expected to be rated one notch lower. China Taiping’s bond is rated BBB+/A- rating while Sunshine Life’s is rated A1/Baa1.
The success of Taikang's debut issue may partly be down to its sector. Although Chinese issuers may be regulars in the market, insurance companies are reasonably rare issuers throughout the region. But bankers also put emphasis on the wider market backdrop.
"The bond market has stabilised in recent weeks after having a period of extreme market movements since the election of Trump," a syndicate banker said. "An issuer-friendly market has allowed companies in different sectors to launch their deals."
This week’s deals have also performed well in the secondary market, giving hope to issuers that the strong market will continue. According to a syndicate banker, Taikang's bond was trading at 159bp over Treasuries on Thursday morning, about 9bp tighter than its original price.
The final orderbook reached $1.7 billion from 55 accounts. By region, Asian investors took 98% and the remaining 2% went to Europe. Banks took 90%, fund managers 9% and private banks/others 1%.
Taikang was founded in 1996 by Chen Dongsheng. In 2011, Goldman Sachs bought a 12% stake in Taikang Life Insurance Group for an undisclosed price.
The global coordinators of the bond were Bank of China Hong Kong, BNP Paribas, CICC Hong Kong Securities, JP Morgan, while Bank of China, BOCI, Bocom Hong Kong, Credit Suisse, ICBC International and SPDB International were joint bookrunners.
