ABC Leasing ploughs maiden furrow for dollar bonds

The leasing offshoot of China's third largest bank plants a well-received deal at the head of a potentially tricky week for Asian bond markets.

ABC Leasing, the leasing unit of Agricultural Bank of China, made its international bond debut on Monday with a $500 million deal that slipped into the market at the beginning of a potentially tricky and volatile week.

Central bank meetings for the US Federal Reserve, Bank of England and Bank of Japan all have the potential to surprise the market, particularly the Bank of Japan, which could prove to be the wild card of the pack if it announces further easing measures.

ABC Leasing’s five-year offering also had to contend with a big move in US Treasuries over the weekend. At 1.64% 10-year Treasuries are now 6bp wider than they were a week ago and are touching 2012 levels.

However, bankers said that even though there was further selling pressure on Asian credit on Monday, particularly at the 10-year point of the curve, spreads continue to outperform Treasuries. In part this has been thanks to onshore Chinese demand.

This demand has propelled Chinese banking and leasing spreads ever tighter and ABC Leasing had a good springboard for its deal even though there has been a lot of paper in the market recently.

Three of its major competitors – the leasing units of Bank of China, ICBC and China Construction Bank – have raised a combined $3 billion in the past two months, while China Aircraft Leasing, partly owned by state-owned conglomerate China Everbright Group, raised $300 million from a debut issue in late April.

Another deal is also on the cards after BoCom Leasing announced that it had mandated Standard Chartered for a deal on Monday.

Nevertheless, ABC Leasing attracted a peak order book of $2.4 billion before dropping to $2.1 billion, with participations from 66 investors. This is less than the $3.75 billion and $3 billion peak order books that CCB Leasing and ICBC Leasing attracted in mid to late May.

However, ABC Leasing only offered one five-year tranche compared to others split three- and five-year offerings.

By investor type, 73% went to banks, 23% to asst managers/ fund managers, 2% to sovereign wealth fund and insurance companies, and the remaining 2% to private-banking accounts. By geography, Asian investors accounted for 98%, while European investors represented 2%.

One fixed income investor told FinanceAsia the leasing company was able to price the new bonds at the tight end of price guidance thanks to a direct guarantee from Agricultural Bank of China Hong Kong branch. By contrast CCB Leasing used a Cayman Islands SPV with a keepwell and liquidity support undertaking from CCB Leasing.

As a result, ABC Leasing priced closer to its parent’s senior debt than CCB Leasing.

Initial price guidance was pitched at 170bp over Treasuries before being tightened to 5bp either side of 150bp over.

Final pricing of a June 2021 note in the name of ABCL Glory Capital Ltd was fixed at 99.543% on a coupon of 2.5% to yield 2.598%, or 145bp over Treasuries, according to a term sheet seen by FinanceAsia.

The closest comparables were Agricultural Bank of China’s outstanding 2.75% May 2020 and 2.75% October 2020 bonds, which were trading on a G-spreads of 115bp and 109bp respectively.

This means the new deal has come at a 30bp premium to ABC’s senior debt. This is 7bp tighter than the level CCBL achieved relative to its ultimate parent in late May when it completed its $600 million 2.75% 2020 bond.

This latter deal was priced at 98.477% to yield 3.081% or 168bp over Treasuries. On Monday it was trading on a mid-price of 102.355% to yield 2.64% or 160bp over Treasuries.

This also means that ABC Leasing’s deal has priced at a roughly 15bp premium to CCB Leasing. Given there is about 8bp between the two credits senior debt this suggests the new deal has offered a fairly decent, but necessary, 7bp to 8bp new issue premium.

Besides aircraft leasing, the company is also engaged in shipping and port leasing businesses, according to its website.

Its online roadshow flags its unique niche in sannong leasing (agriculture) including cotton picking machine leasing, sugar cane machine leasing and tractor leasing. At the end of 2015 its leasing business had total assets of Rmb36 billion ($5.47 billion).

In February, Beijing tapped Liu Shiyu, chief of Agricultural Bank of China, the country's third biggest lender by assets, to head the China Securities Regulatory Commission, replacing the embattled Xiao Gang.

Joint global coordinators for the bond deal were: ABC International, Agricultural Bank of China Hong Kong Branch and CICC Hong Kong, while ANZ, DBS Bank and Wells Fargo Securities joined as joint bookrunners.

The story has been updated since first publication with final deal stats.

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