China Oilfield Services (COSL) is the latest mainland oil and gas company to tap the international bond markets, attracting strong demand for a 10-year issue priced late on Thursday night.
COSL, the leading oilfield services provider in the offshore Chinese market, achieved a low coupon and a tight yield spread. The $1 billion debut issue was launched after a brace of Chinese oil and gas issues in the second quarter of this year.
In April, CNOOC received $17 billion of orders for a $2 billion dual-tranche issue made up of 10- and 30-year bonds. Three weeks later, Sinopec trumped that performance with a $3 billion triple-tranche deal.
The obvious comparison for the COSL deal was the CNOOC 10-year bond, which was bid at 145bp on Thursday morning. CNOOC is the parent of COSL and is rated two to three notches higher at Aa3 by Moody’s and AA- by Standard & Poor’s.
The transaction was executed swiftly on Thursday, following roadshows earlier in the week in Asia, Europe and US. The marketing process elicited a broad spectrum of opinions about appropriate pricing, according to a banker familiar with the deal. Some investors insisted on a generous yield spread, others were more focused on the absolute rate and some were mostly interested in the final re-offer price.
After assessing those responses, the lead managers gave initial price guidance of Treasuries plus 190bp, but rapid bookbuilding and commitments made by anchor investors allowed them to narrow the spread to 170bp to 175bp over the Treasury yield, before pricing at the tight end of that range late on Thursday night.
The bonds pay a 3.25% coupon and were re-offered to investors at 99.341 to yield 3.328% to a maturity date of September 6, 2022. In weak market conditions on Friday, they were bid at 169bp.
The issue garnered orders worth around $9 billion from 340 accounts. The biggest slice was allocated to Asian investors (65%), while 19% and 16% was placed in Europe and the US respectively. By investor type, 47% was sold to asset managers, 24% to commercial banks, 22% to private banks, 5% to insurance companies and 2% to others.
COSL took few chances and appointed as many as 11 bookrunners for the deal. The joint global coordinators were BOCI, Citi and UBS, and the other bookrunners were China Merchants Securities (HK), Credit Suisse, DBS, Deutsche Bank, Goldman Sachs, HSBC, ICBC and J.P. Morgan. Investors must have been ducking calls from yet another salesperson seeking an order for the issue, while the banks must hope that repeat or alternative advisory business can compensate them for their efforts and sparse fees.
The deal was sold under the SEC’s Rule 144a. The bonds will be listed in Hong Kong and are subject to New York law. The issuing vehicle was COSL Finance (BVI), rated single-A by Fitch and one notch lower at A3 by Moody’s. A guarantee is provided by COSL, which has the same credit ratings. Investors have a put option at 101 should CNOOC cede control of the firm.