Asia’s debt capital market is sputtering to a close before Christmas holidays with a few borrowers reopening the issuance of their outstanding bonds, pushing volumes to an all-time high.
On Thursday evening, China Orient priced a $500 million reopening of its existing 3.75% dollar bond offering expiring in September 2019, the second drawdown of the asset management firm’s $2 billion medium-term note programme set up in September.
The five-year offering — executed within nine hours — was announced at initial price guidance at Treasuries plus 255bp to 260bp, according to a term sheet seen by FinanceAsia. Due to significant demand the bond was priced at the upper end of the issuer’s target size as well as the tightest end of the initial price guidance.
“[The deal] generated strong demand of $2.6 billion weathering the mid-December window and weaker market backdrop with no competing supply in the market,” said a source familiar with the matter, adding that the A3/A- rated firm benefits from 100% Chinese government support. “The transaction was driven by significant reverse interest by high quality buy and hold investors.”
China Orient was also initially supposed to reopen its 5% outstanding bonds maturing in 2024, but opted against it. The notes had an initial price guidance of around 305bp to 310bp over Treasuries.
Sources close to the deal said that, although there was lots of appetite for the 10-year note, the issuer decided to only launch the five-year tranche as it was far more attractive cost-wise.
"We gave investors of the 10-year the chance to switch into the five-year," said the source.
The bond, China Orient's first reopening transaction in the offshore market, received overwhelming investor response despite market headwinds.
Global sentiment softened in recent days with news from the oil sector grabbing headlines yet again. Crude dropped over 4% on Wednesday alone to trade around $61 a barrel following Opec’s downward oil demand revision announced end-November.
The S&P 500 weakened 1.64% on Wednesday, the most since October, amid a renewed search for safe haven which invariably pushed up demand for US Treasuries with 10-year yield down below the 2.16% level, according to Bloomberg data.
China Orient’s tap issuance — a procedure that allows borrowers to sell bonds from past issues — is the third one to surface this week. Indian bank ICICI priced a $200 million increase of its 3.5% note expiring in 2020, while Chinese developer Sunshine 100 increased its 12.75% bond maturing in 2017 by $100 million via a private placement earlier in the week.
Due to these issuances Asia ex-Japan bond volumes crept past $212 billion year-to-date, a record high, according to Dealogic data. This is 43% higher than last year’s total annual volume.
Ninety-five accounts participated in the offering. Fund and asset managers purchased 47% of China Orient’s notes followed by banks with 45%, insurance, sovereign wealth funds and corporates 5%, and private banks and other 3%. Asian investors subscribed to 93% of the paper while the rest went to Europe.
Proceeds of the offering will be used for working capital and general corporate purposes, according to sources familiar with the matter.
In secondary markets, the bond is trading around par, according to Bloomberg bond data.
China Orient, 100%-owned by China’s Ministry of Finance, was established by the Chinese government in 1999 as one of four asset management companies tasked with removing problem loans from the mainland’s major banks prior to their listing.
Bank of China International was the sole global coordinator and joint bookrunner of the Baa1/A- rated issuance. Other joint bookrunners include Bank of Communications Hong Kong branch, Morgan Stanley, Standard Chartered Bank, UBS and Wing Lung Bank.