China Great Wall Asset Management Corporation returned to the international bond markets for the second year in succession on Thursday with a $1 billion three-year Reg S deal.
Unlike fellow distressed asset management companies Cinda and Huarong, Great Wall chose to use a standby letter of credit (SBLC) to enhance the creditworthiness of its deal. This was the same format as its 2014 offering, although this time Agricultural Bank of China provided the SBLC rather than Bank of China.
Great Wall's deal took advantage of a slightly firmer tone to Asian credit markets, which started to rally on the back of rising equity markets.
This better market backdrop, combined with fairly generous pricing, meant it was able to generate a large order book of $6.5 billion. However, it was not in the same league as the mammoth $15 billion plus order books Cinda and Huarong each amassed for their respective deals earlier this year.
Pricing of the A1/A rated deal was fixed at 99.573% on a coupon of 2.5% to yield 2.649% or 150bp over Treasuries. This represented the tight end of final guidance, which began the day at 180bp over Treasuries.
Secondary market levels
Great Wall's new deal offers a roughly 32bp pick up over its existing $500 million 2.5% 2017 bond, which was trading on Thursday at a mid-yield of 2.33%.
It also offered a roughly 42bp pick up over Agricultural Bank of China's own senior debt. The bank has a 2.875% 2018 bond outstanding, which was trading on Thursday at a mid-yield of 2.23%.
From the distressed asset management (AMC) sector, Huarong's 3.5% January 2018 bond was trading on Thursday at 2.34%, some 30.9bp tighter. This deal has a Baa1/BBB+ rating and is not backed by an SBLC.
Investors tend to treat the four state-owned AMCs as property plays given that many of the distressed assets they turn around are from the sector. Analysts believe they will be able to generate higher returns on their assets as the sector turns.
They also argue that the government's continued efforts to restructure its state-owned enterprises should continue to generate plenty of assets for them to work on.
At the end of 2014, Great Wall reported total assets of Rmb268 billion ($43.17 billion), up from Rmb153 billion in 2013. Of this amount, Rmb164.6 billion constituted distressed assets.
Since it was first set in 1999 as a wholly owned subsidiary of the Ministry of Finance, Great Wall has acquired and disposed of Rmb820 billion assets from the banking sector.
According to its roadshow documents, net profit rose 19.2% year-on-year to Rmb6.2 billion in 2014. This generated a return on assets of 3.9%, down from 4.8% in 2013. Return on equity, however, rose to 22.6% from 21.2%.
The group's Capital Adequacy Ratio ended the year at 13.7%, down from 15.6% in 2013.
In 2007, Great Wall began to transition from a policy oriented institution to a market-driven business model. As such, it wants to diversify into high fee income business such as investment banking, and now owns a 58% stake in broker GW Glory Securities and a 58% stake in a bank called BOD.
At the end of 2014 it had established strategic partnerships with 26 provincial and municipal governments, 41 large financial institutions and 156 corporates. It also provides financial services to 1,500 other key enterprises and 3,000 SMEs.
Syndicate
Joint bookrunners for the bond deal were Agricultural Bank of China, CCB International and Standard Chartered. Joint lead managers were BOCI, CICC Hong Kong, Citic CLSA Credit Suisse, Deutsche Bank, Guotai Junan International, HSBC, ICBC Asia, JP Morgan, SGCIB and Wing Lung.
