Asia IG bonds on a roll

Hutchison Port, ICBC Financial prices dual-tranche dollar notes while Beijing Infrastructure sells a euro offering as the market reopens for high-quality bonds.

The pipeline for Asian investment grade issuers has reopened after a short lull with Hutchison Port, ICBC Financial, and Beijing Infrastructure tapping debt markets for funding.

Hong Kong-based port operator owned by tycoon Li Ka Shing Hutchison Port and Chinese bank ICBC Financial both priced dual-tranche dollar offerings, according to term sheets seen by FinanceAsia. Chinese metro construction firm Beijing Infrastructure, meanwhile, sold a euro-denominated bond.

Asia's supply of so-called G3 bonds — bonds denominated in dollar, euros, and yen — have dwindled in the last few days on fears the Federal Reserve may raise benchmark interest rates earlier than expected, buoyed by a stronger greenback and improving economic data. 

The Asian market has also been partially affected by the Kaisa near-default saga but this has dampened appetite primarily for higher-yielding credits, with demand in the investment-grade space seen staying more resilient due to a global dearth of yield.

“Short-term Asia investment-grade credit should be dealt with caution because of current investor sentiment impacted by events such as a continued drop in oil prices, [fragile] global growth, and political concerns, a heavy new issuance pipeline and Kaisa,” said a Hong Kong-based investor who declined to be named.

“But medium-term Asia investment grade credit may be more constructive given attractive valuations relative to US and EU investment grade credit,” the investor said.

In a report released on February 24, Aviva Investors said the current yield spread offered by Asian investment grade debt over comparable US and EU paper was 70.6 basis points and 122.8bp, respectively. This suggests that Asia is able to offer attractive returns higher up the quality curve.

The US dollar has rallied hard in recent weeks, touching a 12-year high on Wednesday against a range of currencies, while 10-year US Treasury yields fell 2 basis points to 2.09% in early trade on Thursday, according to Bloomberg data.

Asian debt capital markets saw two deals in the earlier part of the week — a $300 million tap on Tuesday by Chinese high-yield developer Shimao Property of its existing 2022 bond and Petronas’s mammoth $5 billion multi-tranche bond which finally priced early on Thursday. These essentially reopened the Asian investment-grade pipeline.

High-yield issuance so far this year in Asia ex-Japan is down 5.3% year-on-year at $5.6 billion, while investment-grade volumes including the latest Petronas issue are up 10.3% at $11 billion, Dealogic data shows.

Euro appeal rises

Metro construction firm Beijing Infrastructure priced a €500 million ($531 million) three-year bond at mid-swaps plus 95bp on Thursday evening, which is 5bp tighter than the initial price guidance area, according to a term sheet seen by FinanceAsia. The reoffer price is 99.768%.

Of late, Asian issuers including the likes of China’s State Grid Corporation and CCB Asia have been engaged in euro borrowings as the cost of financing in Europe slides to a record low, DCM bankers said.

Since the European Central Bank announced plans to start a programme of aggressive bond buying in the eurozone to reverse disinflation and boost consumer and investor confidence, prices for bonds in the region have jumped, sending yields to record lows and in some cases below zero.

Also, the euro at one point this week declined below 1.05 against the US dollar, its weakest since Jan 2003, according to Bloomberg data.

Rated A2/A/A+, the latest Reg S-only euro offering is guaranteed by Beijing Infrastructure Investment in the form of a keepwell agreement, liquidity support deed, and deed of equity interest purchase undertaking.

The proceeds raised will primarily be used for railway projects in Beijing, a source familiar with the matter said.

Bank of China, BNP Paribas, CCB International, ICBC Asia, HSBC, JP Morgan and Royal Bank of Scotland are the joint bookrunners of Beijing Infrastructure’s latest deal, which is part of its existing $2 billion medium-term note programme.

Hutchison Port, ICBC

Hutchison Port launched $500 million three- and $500 million five-year dollar bonds in the 144A/Reg S market on Friday morning, pricing the notes at Treasuries plus 127.5bp and 140bp respectively.

The pricing tightened from an initial price guidance of US Treasuries plus around 140bp and 150bp for the three- and five-year tranche respectively, according to the term sheet.

Standard & Poor's expects Hutchison to use a substantial portion of the net proceeds to refinance and repay early some of the debt at its subsidiaries, as well as to meet its short-term obligations. The company will use the rest of the proceeds for general corporate purposes.

Rated Baa1/BBB+, the offerings are guaranteed by Hutchison Port Holdings Trust, acting through its trustee manager Hutchison Port Holdings Management. Bank of America Merrill Lynch and HSBC are the joint bookrunners of the transaction.

ICBC Financial sold $400 million three-year and $600 million five-year bonds on Thursday evening. The issuer launched the A3/A rated Reg S-only paper at Treasuries plus 175bp and 190bp, which is tighter an initial price guidance area of Treasuries plus 205bp and 225bp, respectively, according to a term sheet.

The funds raised will be used for the acquisition of assets, a source familiar with the matter said.

Citi, ICBC Asia, ICBC International, JP Morgan, Morgan Stanley and Standard Bank are the joint bookrunners of the transaction.

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