A renewed risk-off sentiment in the markets after the drama surrounding US President Donald Trump’s latest controversy did not stop investors pouring money into BOC Aviation’s new five-year bond.
In fact, the Reg-S sale drew as much as $3 billion of orders at the peak level, proving largely immune to a market rout as political jitters lingered from Trump’s abrupt dismissal of FBI director James Comey and his sharing of sensitive intelligence with Russia's foreign minister.
The S&P 500 Index suffered the biggest one-day drop in eight months on Wednesday, while the 10-year US Treasury yield fell 10bp on the same day. But despite the volatility, BOC Aviation, the aircraft leasing unit of Bank of China, managed to generate $1.6 billion of demand from 100 accounts, said a syndicate banker running the deal.
“The credit fundamentals and investors’ familiarity with the name provided enough support for the new deal,” the banker said. “Generally, demand for investment-grade names remains robust in the near term.”
“The spill-over from the US was limited in Asia but fixed-income investors may be cutting back on growth and inflation expectations, which can erode the value of bonds’ interest payments,” the person added.
On Wednesday morning, BOC Aviation — rated A- by both S&P/Fitch — initially pitched investors with price guidance of 155bp over five-year US Treasuries, before narrowing the range to between 130bp and 135bp. Final pricing of the May 2022 bond was fixed at 99.471 with a coupon of 3% to yield 3.115%, or 130bp over Treasuries, according to a term sheet seen by FinanceAsia.
To gauge fair value of the new bond, bankers used BOC Aviation's outstanding September 2021 note and May 2023 note as the major benchmarks. The shorter-dated paper was trading around 121bp over five-year US Treasuries on Wednesday morning, equivalent to a G-spread of 132bp, while the longer-dated note was trading 159bp over the Treasuries, or a G-spread of 145bp.
That implied the new bond was priced inside fair value of its tighter 2021 note by 2bp, leading to a slight widening in the secondary market the next day. The new bond was quoted at 133bp over five-year US Treasuries on Thursday morning, according to market data.
The global coordinators were BOC International, Citigroup, DBS, Goldman Sachs, HSBC, and Morgan Stanley, while BNP Paribas, MUFG, OCBC and Westpac were joint bookrunners.