Asia's IG market reopens with triple helping

China Communications Construction, Formosa Plastics, and Haitong International collectively raise nearly $2.8 billion worth of dollar-denominated bonds.
China Communications Construction prices its first dollar bond
China Communications Construction prices its first dollar bond

Asian bond markets reopened with a bang on Tuesday as China Communications Construction, Haitong International, and Formosa Plastics all launched dollar-denominated deals.

With the passing of the blackout period and Easter hiatus, Beijing-based China Communications Construction priced a $1.1 billion perpetual bond offering that is callable in year five at a yield of 3.5%, according to a term sheet seen by FinanceAsia.

Another inaugural issuer was Formosa Plastics, a Taiwan-based plastic manufacturer, which sold a $1 billion 10-year bond at US Treasuries plus 157 basis points, while repeat borrower Haitong International launched a $670 million five-year note at Treasuries plus 220bp, according to their respective term sheets.

This flurry of debt capital market activity comes against a backdrop of soaring regional stock markets.

The MSCI Asia Pacific Index added a further 0.21% on Tuesday, after closing Monday at its highest since May 2008. Shares in Hong Kong, in particular, have sizzled this month but significant gains have also been seen in mainland China and Japan.

The Asian investment-grade iTraxx index is also 4bp tighter at 104.5bp/106.5bp compared with a week ago.

“Coming back from [the] Easter holidays, investors are more excited to put money to work,” a Hong Kong-based head of debt syndicate told FinanceAsia, describing it as a good start to a busy season. “The market climate right now is positive for [both] credit and equities.”

China Communications

Issued under subsidiary CCCI Treasure, state-owned China Communications Construction’s maiden dollar offering is the first corporate perpetual offering to hit markets in nearly three months, according to Dealogic data.

Rated A3/A-, the Reg S-only bond priced 30bp tighter than its initial price guidance area of 3.8%, indicating strong investor demand for the paper that comes with an appealing structure. Orderbooks reached over $8 billion from 342 accounts, according to a source familiar with the matter.

The note has hybrid-like features, defers coupons on a cumulative basis and offers no put options to investors. 

But the high cost of step-ups and the dividend stopper — where the issuer will not pay a coupon on another security if it does not pay interest on the bond — could pressure the company to prepay the bonds, which is a positive for bondholders, a Hong Kong-based credit analyst who declined to be named said.

China Communications’s bond resets from the first call date and every five years thereafter to the prevailing five-year US Treasury rate plus an initial spread of 219.2bp plus 500bp, according to the term sheet.

The funds raised will be used by the company for working capital and general corporate purposes outside of China.

On April 8, the Foreign Investment Review Board approved China Communications’s $1 billion acquisition of construction services provider John Holland from Australian-based international contractor Leighton Holdings.

Fund managers subscribed to 45% of the notes, banks 43%, private banks 7%, insurers 3% and sovereign wealth funds and central banks 2%. Asian accounts purchased 85% of the notes, while the rest went to European investors. 

The last company to raise a perpetual was International Container Terminal Services (ICTSI), the Philippine port operator controlled by billionaire Enrique Razon. In January, it sold a $300 million hybrid note callable in year 4.25.

HSBC, Morgan Stanley, and UBS were the joint global coordinators and bookrunners of the offering.

Formosa Plastics, Haitong

Meanwhile, Formosa Group’s inaugural bond is the first Taiwan dollar-denominated corporate offering in nine months and proved to be something of a blockbuster. Formosa Group is the issuing entity and Formosa Plastics is the parent. 

Due to the rarity factor, the note's order book size reached an overwhelming $5 billion by Tuesday evening in Asia, enabling the bond to price 23bp tighter than its initial price guidance area of Treasuries plus 180bp, according to a term sheet seen by FinanceAsia

Rated BBB+, the note is guaranteed by Formosa Plastics, Nan Ya Plastics, Formosa Chemicals and Fibre, as well as Formosa Petrochemical. Each guarantor guarantees 25% of the issuer’s payment obligations.

Accounts totalled 310 for the offering, with Asian investors grabbing 83% of the note and the rest going into European accounts. Fund managers subscribed to 60%, banks 30%, insurers 7% and private banks 3%. 

The last Taiwanese company to raise a dollar offering was Advanced Semiconductor Engineering. In July 2014, it priced a $300 million three-year note and was Asia’s first ever green bond.

Bank of China (Hong Kong) and HSBC were the joint global coordinators and bookrunners of the bond. Other bookrunners include ANZ and Mizuho Securities. The co-managers of the deal include Bank of America Merrill Lynch, DBS, Standard Chartered and UBS.

Elsewhere, financial services group Haitong International's bond priced 25bp tighter than its initial price guidance area, according to a term sheet seen by FinanceAsia. The proceeds from the Reg S-only offering will be used for increasing its share capital and for general corporate purposes.

Orderbooks for Haitong's deal touched $5.5 billion orders from over 250 accounts, with Asian investors subscribing to 82% of the notes and the rest going into European accounts. Fund managers purchased 46% of the paper, followed by banks 33%, private banks 9%, insurers 9% and others 3%. 

Haitong International and Standard Chartered were the joint global coordinators and bookrunners of the transaction. The other joint global coordinator was Banco Espirito Santo de Investimento while the other joint bookrunner was CMB International.

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