House banks Goldman Sachs, HSBC and UBS priced an increased $600 million Reg S bond issue for MTR Corp yesterday. The A1/A+/AA- rated deal was increased by $100 million after accumulating an order book of $1.9 billion and priced inside initial guidance.
Terms comprise a 10-year maturity with an issue price of 99.121%, coupon of 4.75% and yield of 4.862%. This equates to a spread of 83bp over Treasuries, or 44bp over Libor. Fees total just 15bp and there is no other syndicate.
Just over 130 investors participated in the deal with a geographical split that saw 75% placed into Asia and 25% into Europe. When the group last tapped the market in November 2000, it aimed for more balanced global distribution and placed 55% into Asia, 25% into the US and 20% into Europe.
This time round it was keen to maximise the Asian bid and as such the pricing leverage it could gain. This will almost certainly mean the new deal will be heavily asset swapped and particularly as about 50% was placed with banks. The remaining 50% was split between asset managers on 35% and insurance companies, corporates and retail on 15%.
At 83bp over Treasuries, the deal came 2bp through the tight end of initial guidance between 85bp to 90bp. It has also been priced through the secondary market trading levels of the Airport Authority of Hong Kong, which in turn priced through MTR Corp when it came to market last September.
At Asia's close yesterday, the AA's 5% September 2013 issue was bid just above par to yield about 85bp over interpolated Treasuries, or 47bp over Libor. Being able to price through the existing quasi sovereign proxy curve is a function of rarity value, both in terms of the regularity with which Hong Kong government-owned issuers come to market and the amount of paper outstanding after heavy asset swapping. The AA's deal, for example, was only $300 million in size.
Analysts believe the new deal has been priced just below fair value and observers say it would have been difficult to push the book tighter given the levels of price sensitivity around the 83bp level.
During roadshows, the group said it has funding needs of HK$8 billion ($1.28 billion) during 2004, most of which has been taken care of by the bond. It added that capex needs will be small by historical standards over the coming few years, implying that visits to the international capital markets are likely to be rare.
The major credit issue hanging over the group is the possibility of a merger with the KCRC following a feasibility study by the government. Here treasury officials said that while the group would welcome a merger, the final decision rests with the government.
At present there is no concrete news on either the timing or structure of a deal. Its merger advisors are Goldman and UBS, the two banks that also led its IPO back in the autumn of 2000 alongside HSBC.
