The market last Friday welcomed a rare non-government-linked corporate bond to be issued by a Chinese company outside the property sector. Chinese coal and coke producer Hidili Industry International Development priced a $400 million bond with a coupon and yield of 8.625%. The senior unsecured five-non-call-three deal was reoffered at par and was issued under the Regulation S/144A format. The bonds mature on November 4, 2014.
The issuer was pleased with the pricing, given the weaker markets last week. Some of the investment-grade trades that priced last week, such as Korea Gas and Axis Bank, cheapened aggressively on Wednesday and Thursday.
Therefore, to price at 8.625%, which was equal to the bookrunners' initial whisper of 8.625% to 8.75%, was deemed a good result by the issuer.
In the end, Hidili was able to attract $1.6 billion worth of orders from more than 170 accounts.
The bookrunners used Indonesian coal companies as a benchmark, with a particular focus on Berau Coal Energy’s recent $350 million 2015 issue. At the time of pricing Berau was trading at a yield of about 8.5%.
The bulk of the deal, or 68%, was placed into Asia, Europe was allocated 21% and the US took the remaining 11%.
Fund managers bought 56%, banks 12%, insurers 13%, private banks 12%, corporate investors received 4% and the remaining 3% of the sale was divvied up between other types of accounts.
“This is a true high-yield bond in the sense that these guys have bought up a lot of mines and mining rights, but not all of them are necessarily functional,” explained one banker. It is expected that the money from the sale will be used to ramp up production.
"The rating on Hidili reflects the company's high exposure to the cyclicality of the steel industry, high customer concentration, and moderate execution risk," said Standard & Poor's credit analyst Judy Kwok-Cheung. "These weaknesses are partly mitigated by the company's competitive advantages of access to a good resource base and proximity to customers in the south of China," she added.
The notes were rated B1 by Moody’s and BB- by Standard and Poor’s.
The notes traded down in the secondary market on Friday to a cash price between 99.375 and 99.5. However this was on par with what was happening across the market. The Asian investment grade index widened by 3bp and the Asia sovereign index had also traded wider by 2bp.
However, Berau Coal, which had closed at 115 on Thursday, opened at 115.125 on Friday.
Bookrunners to the deal were Bank of America Merrill Lynch, Citigroup, UBS and JP Morgan.
Chong Hing Bank
Meanwhile, Hong Kong’s Chong Hing Bank sold $225 million of lower tier-2 subordinated debt, also on Thursday night. This was the first regulatory switch step-down structure offering in Asia and the first Asian bank sub-debt offering since the release of the Basel III requirements on new bank capital in September.
The Baa3/BBB (Moody’s/Fitch) Reg-S notes were issued as a 10-year bullet with a 6% semi-annual coupon. The bonds will mature on November 4, 2020.
After obtaining approval from the Hong Kong Monetary Authority for the structure, the transaction was announced to the market last Monday. Despite the short notice, investor requests for meetings were overwhelming, allowing a full schedule to be set up in Singapore and Hong Kong on Tuesday and Wednesday.
Price guidance was announced on Thursday at Treasuries plus 350bp for a 10-year bullet lower tier-2 bond with an expected size between $200 million and $250 million.
In just over four hours, robust investor demand generated a solid order book that left the deal more than three times subscribed. The demand was underpinned by strong real money and hedge fund interest for high-quality paper from a rare credit. Lower tier-2 bonds have also been a rare asset class in Asia this year. As a result, the syndicate released a final yield guidance of 337.5bp to 350bp.
The issuer achieved a yield that was 10bp wider than Dah Sing Bank's $250 million 6.625% 10-year issue, which is rated two notches higher, and inside of an implied new 10-year lower tier-2 issue from Citic Bank ($500 million), which has the same ratings as Chong Hing Bank.
More than 110 investors participated, with the largest order at almost $80 million and the top 10 investors taking almost 50% of the total issue size.
Distribution saw Hong Kong investors receive 56% of the bond, while the rest of Asia took 38% and Europe 6%. Fund managers bought 51%, banks 24%, private banks 21% and insurance houses 4%.
Goldman Sachs, HSBC and UBS were the bookrunners.
