Lead manager Merrill Lynch has won many plaudits for spotting an opportunity and getting a deal away for a group, whose previous and unsuccessful effort in dollars this July was dogged with controversy from start to finish.
A Y30 billion 30-year euro-yen issue with a five year call option has been priced at par with a coupon of 3.65%. Completed as a private placement, the sole investor is believed to be Aflac Inc according to Tokyo-based bankers.
The Colombus Ohio-based supplemental healthcare insurer has always traditionally been a large buyer of long-dated Yen-denominated paper to match its portfolio requirements. With a Japanese policyholder base of $6.4 billion, the group ranks as the country's largest foreign insurer and derives nearly 80% of its global revenues from this one source.
On Merrill's side, the bank says it began to consider what it could do for PCCW-HKT on the day its last bond deal collapsed, only then waiting until it was subsequently freed from a conflicting advisory role with Cable & Wireless.
Rival bankers also acknowledge that pricing compares very favourably to existing comparables and the companyÆs $4.7 billion syndicated loan, which PCCW-HKT wants to re-finance in order to rid itself of restrictive covenants. At a swapped spread of 280bp over Treasuries, the new deal comes well inside the final 325bp spread investors had been demanding for the 10-year dollar deal back in the summer. Bankers also say that the incremental cost for lengthening its maturity profile is also reasonable relative to the average cost of its bank debt (115bp over Libor).
The deal marks the first 30-year offering since a spate of long-dated offerings in 1997. Since then, Hutchison Whampoa considered adding a 30 year tranche to its $1.5 billion deal in January this year, but abandoned the plan after investors demanded a 50bp to 60bp pick-up to the 187.5bp launch spread of the 10 year tranche.
Currently, A3/A rated Hutch's existing 2027 issue is trading at a bid/offer level of 265bp/251bp (Friday's close), while Telekom Malaysia, which carries a one notch lower rating from MoodyÆs than PCCW is trading at 350bp/335bp.
Baa1/BBB rated PCCW's deal further benefits from the inclusion of a five-year call option, which can be called at par. Some bankers have speculated that the power to call the deal lies with Merrill Lynch rather than PCCW, effectively rendering the deal a much shorter trade. Merrill's bankers, however, dismiss the claim, concluding that the option is hugely valuable to the telephone company and would normally require a 20bp to 30bp pricing premium.
Few must doubt that the transaction has enabled PCCW to partially lay to rest the ghost of its failed $3.8 billion offering. As one banker puts it, "This should really help the group to launch a larger deal. PCCW can now go back to US investors and say 'look we can raise cost-efficient debt and at a time which suits us'."
