China Minmetals issues aggressively priced bond

The country's largest metals trader prints a $1 billion bond that prices inside its secondary levels.

China Minmetals Corp, the country's largest metals trader, returned to the international bond markets on Wednesday with an aggressively priced dual-tranche bond in the wake of a calmer post-Brexit mood.

The sale comes after Moody's in May downgraded the state-owned company's credit rating from A3 to Baa1 amid deepening concerns over the effect of slumping commodity prices on its earnings. 

Due to its full ownership by State-owned Assets Supervision and Administration Commission, the privately held company, rated Baa1/BBB+, garnered a peak order book in excess of $8 billion, with demand skewed towards the 10-year notes over the 5-year bonds, according to two sources familiar with the transaction.

The company reported major losses because of asset impairment charges and a significant weakening of its credit metrics. Its adjusted debt-to-ebitda ratio rose to 17.4 times last year, up from 11.5 times in 2014.

Despite deteriorating quality of the assets, two sources said the longer-dated debt was a boon for investors such as life insurance companies and pension funds that need to match lengthy liabilities. "The company has benefited from a strong backing from the Chinese government," one of the sources said.

"Life insurers gobble up the 10-year US dollar bonds in the market because the low interest rate environment make them harder to generate adequate returns on their vast investment portfolios," a Hong Kong-based fund manager told FinanceAsia.

Separately, a syndicate banker familiar with the deal said that investors such as private banking accounts and institutional funds were also backing the July 2026 bonds as they seek income producing investments. "They like to hold BBB+-rated credit with high spread," the person said.

Initial guidance of the 2021 bond was set at 235bp over Treasuries, before tightening to 205bp-210bp. Final pricing of the $300 million bond was fixed at 99.661% on a coupon of 3.125% to yield 3.199%, or 205bp over Treasuries, according to a term sheet seen by FinanceAsia.

For the new 10-year note, initial guidance was set at 290bp over Treasuries, before the guidance was narrowed to 5bp each side of 270bp over Treasuries. Final pricing of the $700 million bond was priced at 99.644% on a coupon of 4.2% to yield 4.244%, or 265bp over Treasuries.

China Minmetals completed its debut sale last year, issuing a $500 million 2020 bond and a $500 million 2025 bond. Prior to the new issue, the 2020 and 2025 notes were trading at 195bp and 225bp over Treasuries, or a G-spread of 208bp and 260bp respectively. That said, fair value of the new 2021 and 2026 notes should be trading at 218bp and 270bp over Treasuries, based on theoretically extended curves.

Therefore the company paid a negative new-issue premium to the secondary curves, which was impressive from an issuer's standpoint.

Joint global coordinators were Deutsche Bank, DBS, HSBC, Bank of China and ICBC, while Barclays, Bank of America Merrill Lynch, ING, MUFG and UBS were joint bookrunners.

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