Philippines' SM Group sells $500 million of bonds

Demand from onshore investors helped SM Group, a Philippine conglomerate, to sell a keenly priced $500 million bond yesterday. The five-year notes are issued by SM Investments Corporation (SMIC), the group holding company, and will pay investors a 6% coupon.

Close to two-thirds of the bonds, or $325 million, were bought by accounts based in the Philippines, where investors took pricing cues from the sovereign bond market. With the notes priced at par, the 6% coupon represents a 140bp spread over the Republic of the Philippines curve, which is at the tight end of the pricing range discussed with investors in the run-up to the deal.

That was always expected to be a palatable level onshore where there is plenty of demand, especially for quality corporate issuers, but there was also some interest offshore. Asian investors bought $145 million of the bonds, while the remaining $30 million was raised from Europe.

Looking at the group's existing 2013 bonds, which are trading at around 5.8%, the new 2014 bonds are priced tightly, although the old paper is not heavily traded. The same can be said for rival JG Summit's 2013 bonds, which are quoted at 6.7%.

The positive market backdrop has opened the window recently for several of Asia's leading corporations to raise money. In Hong Kong, Henderson Land Development and Hutchison Whampoa raised $3.5 billion last week and in August Swire Pacific raised $500 million. China's Country Garden and Singapore's PSA International have also raised dollar funding so far this month.

In the pipeline, Indonesia's Buma, a coal mining firm, is planning a deal this week and South Korea's NACF, an agricultural cooperative, intends to tap US investors with a Rule-144A offer.

The rush to raise funds is partly in anticipation of a worsening borrowing environment. Companies throughout the region expect the US to pay for its recession with inflation, which will lead to higher interest rates, so they are making hay while the sun shines.

"Issuers are viewing this market as attractive and are using the opportunity to lock in funding," according to a bond specialist in Hong Kong.

In total, 90 investors placed $1.1 billion of orders for the SMIC bonds. Banks and trusts made up the biggest share at 46%, followed by private banks at 42%, asset managers at 10% and others at 2%.

Controlled by Henry Sy and his family, the SM Group is a leading conglomerate in the Philippines that owns retail chains, shopping malls, hotels and other property developments, as well as Banco de Oro and China Bank. Similar to some other Philippine conglomerates, such as JG Summit, SMIC is unrated.

Barclays Capital and Citi acted as lead managers on the deal. The bonds will be listed in Singapore.