Asia $3.1b bond sales ease pipeline pressure

Indonesia sells dollar sukuk, China Taiping launches perpetual bond, while Haitong and ICBC Macau open books for more dollar offerings.

A raft of issuers raised more than $3 billion worth of bonds on Tuesday, easing the pressure built up over the summer period as US Treasury yields remained attractive.

The Republic of Indonesia sold a $1.5 billion 10-year global sukuk while Chinese insurer China Taiping raised a $600 million perpetual bond.

Other issuances include Sri Lanka’s state-owned bank National Savings Bank, which sold a $250 million five-year note, and Korean Development Bank’s $750 million SEC-registered 5.5-year offering.

“There has been a significant pipeline build-up over summer and we expect to see the rest of the year being very busy for bond issuance,” Ashish Malhotra, head of bond syndicate, Asia Pacific told FinanceAsia.

He added that investors would welcome any diversification to the main theme of China, which has been a big part of Asian high-grade supply this year.

China borrowers account for about 45% of Asia ex-Japan G3 supply so far this year, according to Dealogic data, followed by Korean issuers with approximately 16%. In the first eight months of 2014, Asia ex-Japan bond volumes touched $133 billion, which is 35% higher than last year’s volume during the same period.

Also US Treasury yields remain at relatively low levels compared to the near-3% levels seen at the beginning of the year. The US 10-year yield was at 2.43% on Tuesday, climbing 8bp — the most since July 30 — after the Institute for Supply Management’s factor index climbed to 59, according to Bloomberg data. It was the highest level since March 2011.

In spite of the slight increase in USTs, bond issuers are still keen to make use of the still-favourable market environment.

Haitong International is currently in the market with a benchmark five-year dollar bond, with an initial price guidance of Treasuries plus high-200bp area. The Reg S-registered offering is likely to be priced on Wednesday and will be used for general corporate purposes.

ICBC Macau branch is also in the market with a benchmark 10-year dollar bond that is callable in year five. The Reg S-registered note has an initial price guidance of Treasuries plus 250bp area and could also price on Wednesday, according to a source familiar with the matter.          

Haitong International and Deutsche Bank are the joint global coordinators and bookrunners of Haitong’s note. The other joint bookrunner is KGI Asia.

HSBC, ICBC Macau, ICBC International and Standard chartered are joint bookrunners of ICBC’s proposed dollar issuance.

Winners and losers of Asia DCM

Out of the four bonds that came to market in Asia ex-Japan, three outperformed and one underperformed.

The winners are Indonesia’s dollar sukuk and National Savings Bank’s note that both tightened by 5bp from reoffer and China Taiping’s perpetual, which traded up to a cash price of 100.75. The loser is KDB's bond which widened by more than 5bp in secondary markets on Wednesday.

Although KDB, a household borrower in Asia’s debt markets, managed to tighten pricing by 12.5bp to price at Treasuries plus 82.5bp, targeting investors that have appeal for SEC-registered offerings, the bond underperformed.

Poor timing is probably one of the reasons, said a source away from the deal. The Korean financial institution’s bond launched mid-afternoon on Tuesday. “The deal came out pretty late in the day and ended up at the back end of the queue,” said the source.

While no investor breakdown was available for KDB’s deal — being a SEC-registered transaction — sources close to the deal noted that US investor subscription exceeded that of Asian investors and admitted that oversupply in the Asian market early Tuesday led to the underperformance of the bond.

BNP Paribas, Bank of America Merrill Lynch, Deutsche Bank, JP Morgan, KDB Asia, Mizuho Securities and Standard Chartered were the joint bookrunners of KDB’s Aa3/AA- rated deal. 

National Savings Bank saves

State-owned Sri Lankan financial institution National Savings Bank sold a $250 million five-year bond, pricing the offering inside its existing curve and marginally wider than where the sovereign priced six months ago, a source close to the deal told FinanceAsia. The deal launched early Tuesday morning.

The 144A/Reg S-registered note came to market at an initial price guidance of 5.5%, pricing it 35bp tighter at 5.15% — 3.725% cheaper than the coupon of the last bond and only 2.5bp wider than where the Sri Lankan sovereign priced in January.

The nearest comparable for NSB’s offering was its existing bond, which was trading at a cash price of 114 or a yield of 5% prior to announcement. After adjusting for the curve, fair value for the new note will come around 5.33%, indicating that it priced 18bp inside its existing curve, the source added.

The bond received a final orderbook of over $2 billion from over 150 accounts, with 37% of paper going to Asian investors, followed by 29% and 34% to European and US investors respectively. Fund and asset managers subscribed to 80% of the deal.

“People view the country as up and coming, until to the point that the sovereign is consistently able to achieve a lower coupon every time they come to the market,” said the source. “NSB is of quasi-sovereign ownership and people use it as a proxy for the sovereign as well as getting Sri Lankan exposure.”

Today, Sri Lanka’s economy is expanding at a rapid rate. Annual GDP growth was 7.3% in 2013 and is forecast to remain the same in 2014 — that’s nearly 3% ahead of the rest of developing South Asia, which has an average GDP growth rate of 4.8%.

Barclays, Citi and HSBC were the joint bookrunners of NSB’s BB-/B+ rated deal.

China Taiping offers generous terms

Elsewhere, Chinese state-owned insurer China Taiping raised a $600 million perpetual bond that is callable in year five, launching the deal also early Tuesday morning.

This Reg S-registered transaction received an orderbook over $8.5 billion from more than 200 accounts, according to a source familiar with the matter, enabling the deal to tighten pricing by 42.5bp to print at 5.45%. Majority of the paper went to Asian investors.

The deal pays a fixed coupon for the first five-years and if not called, it will reset in September 2019 — and every five years thereafter — at the prevailing five-year UST rate plus a spread of 378.6bp. The bond also benefits from a 100bp step-up if not called in September 2024.

China Taiping’s note also offers investors a generous premium of 175bp over its existing senior paper expiring in 2023 that was trading at a G-spread of 230bp, resulting in a fair value of 3.71% for the perpetual.

“While the pick-up to senior 2023 might not initially look overly attractive given the proposed deal’s subordination, deferrable coupons and significant extension risk, the new perpetual does at least offer a UST yield reset every five years, which we see as attractive in the current low UST yield environment,” said Mark Reade, Asian fixed income trader at Mizuho Securities.

HSBC and Standard Chartered were the joint global coordinators and bookrunners of the BBB- rated deal. CCB International was the other joint bookrunner.

While in Japan…

BTMU raised a $4.2 billion five-tranche bond on Tuesday, which can be broken down into a $1.2 billion three-year offering, $1.25 billion five-year paper, a $750 million seven-year bond and a $1 billion 10-year note, according to a term sheet seen by FinanceAsia. Each of the tranches has a coupon of 1.45%, 2.35%, 2.85% and 3.25% respectively.

In addition, the offering includes a $300 million three-year floating-rate note — giving the issuer the opportunity to increase the size of that particular duration. The interest per annum is equal to the US dollar three-month Libor plus 31bp, and will be paid quarterly.

Given the quality of the financial institution, which is rated Aa3 and A+ by Moody’s and Standard & Poor’s respectively, the issuer was able to tighten the pricing of each of the three-, five-, seven- and 10-year tranches by about 12bp for all tranches to price at Treasuries plus 53bp, 68bp, 78bp and 88bp respectively.

BTMU intends to use the net proceeds from the sale of the notes for lending, securities investment and other long-term investment purposes plus general corporate purposes, including working capital and operating expenses, according to source familiar with the matter.

Bank of America Merrill Lynch, Citi, Morgan Stanley and MUFG were the joint bookrunners of BTMU’s transaction.

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