Two Asian borrowers — China Resources Cement and BOC Aviation — closed debut dollar bonds on Thursday night, raising a combined $900 million. Without a doubt, this has been a standout year for debut bond issuance.
So far this year, 23 borrowers from Asia ex-Japan have raised $14.4 billion through debut dollar bonds, according to Dealogic. This is a steep rise from the six issuers that raised $2.5 billion in 2011 and the two issuers that raised $1.5 billion in 2010.
“For many companies, the 2008 crisis was a wakeup call,” said one banker. “Many of them saw banks pulling lines and realised that they could not just rely on the loan markets and had to look to the bond markets to diversify their funding.
Both deals crossed the line despite weaker market conditions this week, which saw others such as China Hongqiao falter.
First, China Resources Cement. The company priced a $400 million five-year bond, which offered a standby letter of credit from DBS’s Hong Kong branch. If China Resources Cement is unable to make a coupon payment, DBS will have to step in and make the payment. As such, the bonds rank on par with DBS’s unsecured and unsubordinated debt. China Resources Cement is unrated, but the issue is rated Aa1 by Moody’s.
Credit-enhanced bonds are becoming more common, with Doosan Infracore closing a hybrid deal earlier this week. One source said that the letter of credit offered by DBS was stronger than a guarantee, but investors seemed to take a different view.
“The easy trades have been done first and now we’re seeing more complex trades with credit enhancements,” said a Singapore-based investor. “One has to look at the wording. A standby letter of credit is not as strong as a guarantee, so it is down to the wording of the letter of credit.”
The initial guidance was at the 170bp area and the bonds priced at Treasuries plus 155bp, at the tight end of the Treasuries plus 155bp to 165bp final guidance. The company attracted an order book of $2 billion and a total of 108 accounts participated. Fund managers were allocated 69%, private banks 16% and banks 14%. Asian investors were allocated 87% and European and other investors 13%. DBS is the sole global coordinator and bookrunner.
BOC Aviation, on the other hand, closed a $500 million five-year bond, which was swiftly executed within 10 hours. The leads — BOCI, Citi and HSBC — announced initial price guidance at the Treasuries plus 250bp area, which allowed them to capture anchor orders from Chinese accounts. Even at Treasuries plus 250bp, however, rivals said it left too little on the table for investors.
“It looks a bit tight as BOC Aviation is a bit of a crossover credit and it is operating in the aircraft leasing business, which is tough,” said one rival banker. BOC Aviation’s bonds are expected to be rated A- by Fitch and BBB- by Standard & Poor’s.
Nonetheless, the leads built strong momentum in the books, which allowed them to tighten final price guidance to Treasuries plus 235bp to 240bp. The transaction was priced at the tight end of final price guidance — at Treasuries plus 235bp. The deal attracted an order book of about $4 billion from 170 investors.
BOC Aviation was the first bond offering by an Asian aircraft leasing company and the deal was the first drawdown of BOC Aviation’s recently established euro medium-term note programme.
Asian investors were allocated 81% and Europe and Middle East took 19%. By investor type, asset and fund manager 47%, banks 28%, private banks 19% and insurers 6%. The coupon was fixed at 2.875% and the notes reoffered at 99.525 to yield 2.978%.