CDB and Bright Food dine on dollars and euros

Two Chinese state-owned enterprises enter the international bond markets on a a busy but constructive day for Asian credit.
Double helping of Chinese credit for euro investors
Double helping of Chinese credit for euro investors

Two Chinese state-owned enterprises entered the international bond markets on Wednesday hoping to take advantage of a constructive trading day for Asian credits.

A $1.67 billion dual-currency offering from China Development Bank (CDB) and €400 million ($446 million) maiden issue from Weetabix owner Bright Food both priced at tight levels, but may benefit from market momentum ahead of a speech by Federal Reserve Governor Janet Yellen on Friday signalling a possible interest rate hike in June.

CDB back along the Silk Road

China’s Aa3/AA- sovereign rated policy bank returned to the dollar- and euro-denominated markets for the second time this year following the re-opening of its existing 2020 and 2018 dual currency bonds in late January.

Then it had to offer a notable new issue premium in volatile and difficult markets. This time round it built up much stronger order books and pressed down on the premium.

Nevertheless, there was still a marked difference between demand levels for the two tranches in a reflection of CDB’s longer issuance history and Asian investors’ long-standing preference for the greenback.

The bank’s two dollar-denominated tranches attracted a combined order book of $5 billion by the time final guidance was released. This was an almost identical level to the demand Three Gorges Corporation achieved for its own $1.5 billion deal on Tuesday and a lot higher than the $2 billion in achieved in late January.

By contrast, CDB’s euro-denominated tranche had a peak order book of €1.5 billion, lower than the €1.75 billion it achieved in January, although this still prompted the bank to size the deal at the higher end of guidance.

Where the dollar tranche was concerned, CDB initially marketed the five-year and 10-year notes at 105bp and 145bp over Treasuries, before tightening both maturities by 25bp to 80bp and 120bp over.

Final pricing for a $1 billion June 2021 was fixed at 99.642% on a coupon of 2.125% to yield 2.201%, or 80bp over Treasuries, according to a term sheet seen by FinanceAsia.

A $600 million June 2026 bond was priced at 99.555% on a coupon of 3% to yield 3.052%, or 120bp over Treasuries.

The closest comparables for the shorter-dated tranche were CDB's existing 2.5% October 2020 bond and the Export-Import Bank of China's (Chexim) 2% April 2021 note.

These were respectively trading on G-spreads of 74bp and 82bp. The former has tightened 11bp since it was re-opened in January at 85bp over Treasuries.

The best proxy for the new 10-year CDB bond was Chexim’s 2.875% April 2026 bond, which was trading on a G-spread of 122bp on Wednesday.

Syndicate bankers pitched fair value for the Reg S deal at 80bp and 122.5bp over Treasuries, which means the five-year has priced flat to fair value and the 10-year has offered a 2.5bp premium.

"CDB was looking to price on extremely aggressive terms versus its implied curve," one banker commented.

Its strong order book may enable it to get away with it. Both the five- and 10-year tranches of Three Gorges Corporation new bond traded in strongly on Wednesday.

The five-year closed Asian trading 7bp tighter on a mid-spread of 83bp and the 10-year 6bp tighter on a mid-spread of 124bp. Even CCB Leasing, which came into a market awash with paper from the sector, tightened 1bp to 4bp over the course of the day thanks to top demand from retail and onshore investors.

CDB’s €1 billion five-year offering was initially marketed at 75bp over mid-swaps before indicative pricing was tightened to between 60bp and 65bp over. Final pricing was fixed at 99.445% on a coupon of 0.613% to yield 60bp over.

The closest comparables were CDB’s outstanding 0.875% 2018 bond and Chexim’s 0.375% 2019 bond. Both were trading on an I-spread of 45bp on Wednesday.

One syndicate banker estimated fair value for the new deal at a high 50bp to 60bp level over mid-swaps, suggesting a tight new issue premium of only a couple of basis points.

The policy bank will use proceeds for general corporate purposes. According to data provider Dealogic, CDB has been involved in $14 billion worth of M&A transactions in the past three years, including a pre-IPO stake in the $4.5 billion private funding round by Ant Financial, Alibaba's financial affiliate.

Joint bookrunners for CDB’s new dollar bonds were: Bank of ChinaBNP ParibasBocom Hong Kong Branch, China Construction Bank (Asia), HSBCICBC (Asia), KGI Asia, Mizuho Securities, MUFG and Standard Chartered.

Joint bookrunners for CDB’s euro-denominated bond were:  Bank of China, BNP Paribas, Bocom Hong Kong Branch, China Construction Bank, Deutsche Bank, HSBC and Societe Generale.

Bright Food serves up euros

The state-backed food-and-beverage group also returned to the international bond market in just over three years on Wednesday, raising €400 million in a three-year deal.

The Shanghai-based company initially marketed its debut sale through its subsidiary Bright Food Singapore Holdings at 200bp over mid-swaps, before tightening to between 185bp and 190bp after building an order book of €900 million at final guidance. The final order book closed at €900 million.

Final pricing for the Baa3/BBB-/A- rated, three-year bond was fixed at 99.693% on a coupon of 1.625% to yield 185bp over mid-swaps to a term sheet seen by FinanceAsia.

A total of 79 accounts participated with a split of 60% Asia, 19% Germany, 12% Switzerland, 6% UK and other Europe 3%. By investor type banks took 63%, fund managers 27%, insurers and pension funds 4% and private banks 65. 

Bankers said final pricing was fairly aggressive given that the company has a four notch lower rating from Moody’s compared to its closest comparable Beijing Infrastructure, which has an A2/A/A+ rating. The latter has a 1.5% July 2019 bond, which was yielding 1.392% on Wednesday or a Z-spread of 153bp over.

One Singapore-based fund manager noted that Bright Food is highly leveraged, but said its credit rating reflected the strategic importance of its debt-funded acquisitions.

According to Dealogic, the company, which manufactures diary products such as cheese and frozen yogurt, has spent more than $3 billion on M&A transactions over the past three years, including a $1.9 billion purchase of Tnuva, Israel's largest food company.

The company plans to use proceeds from the debt sale to refinance a bridge loan for the Israeli purchase.

The three rating agencies have extremely divergent views of the SASAC-owned credit. While Moody’s and Standard & Poor’s place it at the crossover level, Fitch rates it as low single-A.

The agency upgraded the credit from BBB- last September following SASAC’s zero cost asset injection of Shanghai Liang You group.

The agency said that while Bright Food has a low BB credit profile on a standalone basis, it is now taking a top down approach to its ratings methodology and noted that SASAC is consolidating all the state-owned food and agricultural resources under its remit. Funds from operations adjusted net leverage stood at 7.3 times in 2015, up from 5.8 times at the end of 2013.

Bright Foods firstly tapped the international bond markets in May 2013, with a $500 million five-year deal.

Joint bookrunners for its latest bond transaction were: BNP Paribas, HSBC, ING, Rabobank, Barclays, Bank of China, DBS and Standard Chartered.

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

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