Li Ka-shing’s Cheung Kong placed an unusual $500 million three-year floating-rate note on a private basis on Thursday morning, through sole bookrunner Standard Chartered. In contrast to the US or Europe, floaters are a rarity in Asia’s bond markets and are more commonly seen in the loan markets.
The format of the bonds led to rife speculation on the street that Standard Chartered had taken the entire deal on its own books. However, according to a source, the bank only took a small portion of the deal, and the majority of the bonds were placed with a large non-Asian investor.
“We had one big non-Asian investor that wanted floating-rate exposure. They were unable to asset swap,” said the source. “We showed the investor three to five Asian names — and they were keen on Cheung Kong. It took about a week and a half to complete.”
Given the dearth of floating-rate notes available in the market, the closest comparable was Hutchison Whampoa’s outstanding fixed-rate bonds maturing in 2017 and 2015. Cheung Kong, which holds a 49.9% stake Hutchison Whampoa, is unrated whereas Hutch is rated A3 by Moody’s and A- by Standard & Poor’s and Fitch.
According to the source, the Hutch 2017s and 2015s both traded at Treasuries plus 205bp or a z-spread of 181bp and 160bp respectively. On an asset-swap basis (assuming the investor converts the fixed-rate note to a floater), the Hutch fixed-rate 2015s traded at a z-spread of about 163bp, he added.
Cheung Kong’s floater which matures June 15, 2015, priced at a spread of 150bp over three-month Libor, so the floater was said to come about 10bp inside of the outstanding Hutch 2015s.
Rival bankers suggested that the deal came 30bp tighter than the outstanding Hutch fixed-rate 2015s, and about 35bp to 50bp tighter than what they claimed was fair value for the bonds.
“It’s a great deal for the company,” said one rival. “However, I can’t think of any investors who would have bought it. I think Standard Chartered is lending the company money in a bond format, done that way for the purposes of league table credit.”
Standard Chartered could win league table credit by structuring what is really a loan in bond format, he added.
Sources familiar with the deal suggested that it offered value to investors because of the difficulty they face in picking up sizeable positions in the secondary market. The floating-rate structure also protects against possible interest rate increases and, given the dearth of floaters in the market, offered scarcity value.
“From what I understand, the deal was done because there is interest from the market for short-dated instruments that can be treated as deposit alternatives from companies with a good credit profile,” said a source.
Cheung Kong is a property developer and the bonds were issued off its MTN programme. According to sources, it is in talks with banks for another potential US dollar bond offering.