The mandate for a $200 million deal is expected to be decided within the next two days and follows aggressive market soundings by a number of banks that has erroneously led to reports of its award to BNP Paribas Peregrine.
The company is, however, still said to be considering a number of structures, while BNP remains one of a handful of banks alongside HSBC, JPMorgan and Morgan Stanley that are pitching for the deal. With few quality Hong Kong credits in the existing Asian CB universe and strong demand reported for every single straight bond from the Territory this year, terms are nevertheless expected to be extremely aggressive.
Convertible specialists believe that the deal will be very similar to a recent offering by China Resources. Launched in early May, this $200 million offering was initially viewed to have been overly tight, but has subsequently performed well despite a slight dip, post-pricing. Because of a strong underlying performance, its conversion premium has contracted to 15.3% from 18.11% at launch and its yield-to-maturity narrowed from 3.98% to 3.55%.
Led by Morgan Stanley, the five year zero coupon deal had a premium redemption structure, with hard no call for three years then subject to the 130% trigger and no put options. It was redeemable at 121.78%.
With an implied BBB- rating, the issue was priced on the basis of a 120bp credit level. Similarly Shanghai Industrial launched a five-year FRN last December with a spread of 105bp over Libor.
Because Hong Kong remains one of the few markets where stock borrow is permitted and plentiful, Shanghai Industrial is expected to have strong equity optionality like China Resources before it, with its bond floor of 88.3% and fair value of 108.4%.
The company's two outstanding deals, by contrast are both trading as straight debt. A February 2003 exchangeable is currently trading on the basis of a 191% conversion premium and 6.085% yield, while a June 2002 convertible has a 381% premium and 5.315% yield.
