The volume of bond issuance has picked up considerably during the past week with borrowers from several asset classes tapping the market.
What gives? At the beginning of this week, when PSA International issued its $500 million bond, we pointed out that it's a low-yield environment. However, with both Country Garden and STATS ChipPAC each issuing high-yield bonds on Wednesday, it is clear that despite a weaker market backdrop in Asia, borrowers and investors are keen to get deals done regardless of the current climate.
In the last two weeks alone, $4.2 billion of debt has been printed in the Asia ex-Japan G3 markets. Since the beginning of June, Dealogic had logged a total volume of $11.4 billion from 34 deals. That puts this summer on track to be the year’s most active quarter for the debt markets. So much for frozen margaritas at the beach for the DCM banking teams in the region.
And there's more in the pipeline: offerings from KWG Property Holdings, Land Bank of the Philippines, Olam International and Renhe Property Holdings are all in the works. All four are expected to come to market before the end of August.
But, with so many issuers left in the wings, some say the region runs the risk of oversupplying the market, which frankly happened in March this year and September of last year.
“The number of new issues is straining liquidity,” said one source. “But, that being said, the market is still conducive to new issues pricing but we need to monitor to see how the next few weeks will pan out.”
The market backdrop still remains conducive -- the interest rate environment is still low, which is particularly attractive to corporate borrowers. And if issuers can moderate the deal flow, they should be able to continue to print.
But moderate may be hard to manage. On Wednesday alone, Country Garden returned to price a $400 million five-year issue; Union Bank of India printed its first bond for this year with a $400 million bond; and Singaporean company STATS ChipPAC printed a $600 million security.
Country Garden returned to the debt markets to seek funding for a convertible bond repurchase as well as funding of existing and new projects. It has only been four months since it came to market with a $550 million issue.
The new $400 million five-year bonds hold an August 11, 2015 maturity and will be callable after three years. It was issued with a 10.5% coupon, reoffered at 99.052 to yield 10.75%. The spread was quoted at 915.4bp, however given this is a high-yield transaction, investors tend to look at absolute yield to gauge value and therefore spread to Treasury is not deemed as the best measure for performance of the bonds.
In order to determine fair value, the borrower had referenced the existing 2014 bonds. Taking into account the existing yield curve, that would put fair value for a new five-year issue yield at about 10.45%.
Based on this, Goldman Sachs and J.P. Morgan, which were joint bookrunners for the deal, set the initial guidance at 10.75%. The 10.75% guidance gave a 30bp concession to the existing secondary notes.
In the end, the bonds printed at 10.5% and were just over 2.2 times subscribed with bookrunners securing a $1.25 billion order book from 129 accounts.
As this was a straight-forward Reg-S deal, the bonds were only marketed to Asia and Europe, which got 77% and 23% respectively of the allocation.
Asset and fund managers took 50% of the bonds with private banks lapping up 37%. Banks and other types of investors made up the remainder of the sale.
With the broader market opening yesterday at about half a point lower than what traders saw at the time of pricing, the new 2015s were set to get a flat day of trade. This is exactly what Country Garden experienced closing at 98.875 by the end of Asia’s session yesterday.
Becoming the second Temasek subsidiary this week to price, STATS ChipPAC sold a $600 million high-yield bond. The notes pay a 7.5% coupon to yield at par. This is a spread of Treasuries plus 588bp. The maturity date is August 12, 2015.
Despite the investment-grade rating held by Temasek, the notes hold a Ba1 rating from Moody’s and a BB- by Standard and Poor’s. The reason: the notes have not been guaranteed by the parent and the rating is more a reflection of the nature of operations within the semiconductor industry.
This is a rare credit and as such there are no direct comparables within Asia. Therefore the most liquid benchmark for lead managers Credit Suisse and Deutsche Bank to refer to was the Amkor Technology 2018 bonds, which at the time of pricing was trading at 7.125%. Amkor Technology is an American company and is a provider of contract semiconductor assembly and test services.
Lead managers took the borrower on the road on Monday through to Wednesday of this week. Initially the intention was to end the roadshow on Wednesday and price on Thursday; however, when it became clear that there was an oversubscription on the bonds, the managers decided to accelerate the bookbuilding process and close orders on Wednesday. In the end it secured a $13 billion order book from over 250 accounts.
There was strong demand from high-quality real money accounts with fund and asset managers making up for 79% of the sale. Retail investors took 14%, banks 5% and other types of investors 2%. In terms of distribution across regions, US based investors were keen to tap into the credit, given the region’s familiarity with the semiconductor and packaging sector. As a result, US investors walked away with 43% of the bonds, Asia took 38% and Europe 19%.
STATS ChipPAC is 83.8% owned by Temasek and is a provider of semiconductor test and assembly services.
STATS 2015s opened up in Asia at around the 103 mark and by midday Thursday had not moved.
Union Bank of India
State-owned Union Bank of India priced a $400 million bond late Wednesday evening. The notes were Reg-S registered and were issued from the borrower’s Hong Kong branch. These are senior unsecured notes and carry a 4.625% fixed-rate coupon. They were reoffered at 99.846 to yield 4.657%. This is a reoffer spread of 310bp above the five-year Treasury notes. The bonds will mature on February 11, 2016.
Given the state ownership of the company, the notes were issued with the condition that if the government of India ceases to own at least 50% of the issued preference or ordinary share capital, then this would be considered an event of default.
The trade was very much a plain vanilla deal attracting a $2 billion order book from 240 accounts.
Lead managers -- Barclays, Citi, Deutsche Bank, Standard Chartered Bank and UBS -- referred to the recent 2015 issues from Bank of Baroda and Bank of India as the most liquid benchmarks for pricing, which were both trading within the area of 280bp at the time of pricing.
Thursday’s day of trade proved to be relatively quiet for UBI and the overall Indian banking sector, which had widened by 3bp to 4bp over the course of the day. By the end of Asia’s trading session yesterday, UBI was trading still at the reoffer price, hence performing above the wider market.
Half of the bonds were sold into Asia, with another 45% being allocated to Europe and the Middle East. Offshore US accounts received 5% of the bonds.
Fund managers bought 43% of the bonds, private banks took 32%, banks 20% with insurance and other types of accounts taking the remainder.
The notes received a Baa2 rating by Moody’s and a BBB- by Standard and Poor’s.