The strength of SwireÆs credit story allowed for a very strong participation from private banks keen to get their hands on a well-known regional name, and a good long-term performer. ôThe blue-chip factor played a crucial role in the successful execution of the transaction in challenging markets,ö says a source close to the deal. The transaction launched and priced in 8 hours.
The deal priced at the tight end of guidance, issued at 230bp-240bp over mid-swaps, and upsized from an initial $300 million to $400 million, closing at approximately 35bp to 40bp back from SwireÆs 2016s on a mid-swap basis (allowing five basis points per extra year for the new bonds). The bonds have since tightened by between 13bp and 15bp in the aftermarket.
The negative basis, or spread back from CDS which is a primary benchmark for new issues, was between 70bp and 75bp according to several sources both on the buy- and sell-sides. ôIn an Asian context, this is an attractive level and probably one of the reasons the bonds have performed very well in the aftermarket,ö says an investor. ôThe borrower left some basis points on the table. The new issue concession has put some pressure on other HK investment-grade names such as Hong Kong Land and Wharf, as people switch to the new issue.ö
This led one syndicate banker to argue: ôYes, it is the first pure corporate to price a deal this year and markets are challenging, but Swire is an extremely strong credit, a very old and serious company and its bonds offer good levels of liquidity. I think they paid too much and unfortunately this will be the benchmark for other corporates who attempt to come to market.ö
Meanwhile, an investor notes: ôNo syndicate banker wants to put a trade into the market that is not going to perform, and they are pricing transactions at levels that guarantee a good performance.ö
However, a source close to the deal states the basis was no more than 65bp. ôThis wasnÆt a huge basis trade. At that spread, no-one would buy it. It was a real money trade,ö he adds.
On a broader level, market observers were pleased to see Swire pull off a deal. ôWith Kospo, this is the second deal to come to market in a long time and itÆs good for sentiment to see bonds print and perform in the aftermarket,ö says a banker not involved in the Swire transaction. ôInvestors have been looking for a couple of deals to re-inject a level of confidence in the market.ö
Another syndicate banker adds: ôItÆs great to a see a pure corporate deal get done. ItÆs no surprise that a Hong Kong, single-A diversified name was the last non-sovereign deal to print before the sell-off last year (Wharf Holdings, also via HSBC), and itÆs no surprise that itÆs also the first to print on the return of the market. These are robust non-sovereign linked credits that need funding.ö
In terms of outlook for further issuance, this deal sets the tone for further strong single-A rated credits, but doesnÆt open the way for lesser rated borrowers. ôDouble-B credits are going to be tough to bring to market here,ö says a syndicate banker. ôPeople are getting relatively good returns on investment-grade credits, and I donÆt see investors venturing further down the credit curve for the time being.ö
Nonetheless, Chinese pulp and paper company Nine Dragons Paper has been active on an investor update, arranged by Merrill Lynch. The corporate has recently addressed equity investorsÆ concerns regarding the issue of its plummeting stock price. This was reportedly due to high raw material costs and a sharp rise in recycled paper costs eroding margins. The company is also reportedly speaking with debt investors, and received this week a triple-B rating from Standard and PoorÆs.
Please refer to the termsheet published yesterday on FinanceAsia.com for Swire's full pricing details.
¬ Haymarket Media Limited. All rights reserved.
