CCB Leasing bond flies into congested skies

Another tightly priced deal from a Chinese aircraft leasing company.
New issue premium disappears on the horizon
New issue premium disappears on the horizon

CCB Leasing, the aircraft leasing unit of China Construction Bank, returned to the international bond markets for the first time in almost a year on Tuesday with a $1 billion issue.

The split three- and five-year Reg S transaction follows hard on the heels of a similar $1.3 billion deal for ICBC Leasing one week ago.  

The aircraft leasing companies have become regular issuers in the dollar market but are not yet offering any form of new issue concession for investors, even though order books are getting smaller.

CCB Leasing also faced two further hurdles.

Firstly, the primary market is very crowded. On Tuesday there was a competing $1.5 billion issue from the Three Gorges Corporation and investors are aware of multiple Chinese borrowers waiting in the wings including China Development Bank and Bright Foods. 

Secondly, ICBC Leasing's deal has traded down in the secondary market on a price basis over the past week, although sales desks did report a 2bp tightening during the course of the Asian trading day on Tuesday.

However, this failed to deter CCB Leasing's pricing ambitions and it was still able to build up a respectable $3.75 billion peak order book. Bankers reported a slight skew in demand for the five-year, which was reflected in the final tranching for the deal.

They said this also suited CCB Leasing, which had a slight preference for five-year funding as well.

At $2.5 billion, CCB Leasing's final order book is not as large as the $4.1 billion it garnered for its debut $500 million issue last July, which was also smaller in size. However, the $3.75 billion peak order book was larger than the $3 billion in demand ICBC Leasing achieved last week. But again this was less than the $6 billion book ICBC Leasing achieved for a $1.5 billion deal in November.

Bankers attribute CCB Leasing's better showing to the fact it has less paper outstanding.

"Pricing on these leasing deals is aggressive," one banker acknowledged. "But the buyer base just sits on the paper so they're not actively traded and Chinese investors like them because they offer a decent pick-up to their banks' senior paper." 

Indicative pricing for the two tranches was initially pitched at 175bp and 190bp over Treasuries. 

Pricing for a $400 million three-year tranche was fixed at 99.243% on a coupon of 2.375% to yield 2.639% or 155bp over Treasuries.

A total of 71 accounts participated with a split of 97% Asia and 3% Europe. By investors type banks took 60%, funds 18%, private banks 11% and insurers/corporates the remaining 11%. 

The $600 million five-year was priced at 98.477% on a coupon of 2.75% to yield 3.081% or 168bp over Treasuries. 

In this tranche there were 56 accounts. By geography, 99% went to Asia and 1% to Europe. By investor type, banks also predominated on 69%, with funds taking 14%, insurers and sovereign wealth funds 11% and private banks 6%. 

The two closest comparables are ICBC Leasing's three- and five-year deals from last week. The former was trading on a G-spread of 152bp on Tuesday, while the latter was trading at 169bp.

On a price basis, the three-year was being quoted on a mid-price of 98.115% compared to an issue price of 98.875%, while the five-year was being quoted by the same broker at 98.535% compared to an issue price of 99.196%.

Relative to ICBC Leasing, CCB Leasing has offered a 3bp new issue premium for the three-year tranche, while the five-year has come 1bp through. 

It has also offered a less steep 13bp curve between its three- and five-year paper compared to ICBC Leasing's 17bp curve. 

CCB Leasing's own 3.25% July 2020 deal was trading on a G-spread of 162bp and Z spread of 161bp on Tuesday.

The new issue has an A3/A rating, one notch lower than its A2/A/A company rating on Moody's side because of structural subordination. The issuer, CCBL (Cayman) 1 Corporation has a keepwell and liquidity support agreement.

Its parent bank has an A1/A rating, which is two notches higher from Moody's but the same level from Standard & Poor's. As syndicate bankers argued, this is where the true value lies for many investors. 

CCB's 3.125% January 2020 bond was trading on a Z-spread of 124bp on Tuesday, some 37bp tighter than its comparable leasing paper. 

The Chinese aircraft leasing companies have been growing very fast, although as CCB Leasing points out in its online roadshow, the penetration ratio is still very low. This stands at 3% compared to the 22% ratio in the US.

Overall, the Chinese aircraft leasing market has assets of $114.9 billion compared to $337 billion in the US. CCB Leasing had assets of $15.5 billion at the end of 2015, up 24.3% year-on-year.

It also flagged the fact that, while it is half the size of ICBC Leasing in terms of assets, it has a much lower NPL ratio. This stood at 0.33% at the end of 2015 compared to ICBC Leasing's 0.72%. However, it had also risen from 0.14% at the end of 2014. 

Its credit metrics have improved slightly over the past year with total debt to capitalization of 88.4% in 2015 compared to 91.3% in 2014. 

Joint global co-ordinators for the bond deal were: CCB International, HSBC, Morgan Stanley and Standard Chartered. Joint bookrunners were ANZ, MUFG, CCB Asia, Bank of America Merrill Lynch, DBS and Citi. 

This story has been updated since first publication with final deal stats.

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