Progress has been painstakingly slow on the self-arranged HK$3.5 billion (US$450 million) fundraising for China Resources (Holdings) Co. Bank meetings took place over two weeks ago but the awarding of the official mandate continues to be delayed.
The borrower has compiled a nine strong group that is rumoured to comprise Agricultural Bank of China, Bank of China, Bank of Communications, BNP Paribas, Bank of Tokyo-Mitsubishi, HSBC, Hang Seng Bank, Industrial & Commercial Bank of China and Standard Chartered. These banks have been selected to join the deal as underwriters and have received an mandated price believed to be in the region of 45bp.
Some bankers who are interested in joining the deal once it launches report being sounded out at 43bp all-in for five years although no ticket size has been finalised. This is considerably tighter than the 70bp paid by the borrower on the facility that this transaction is likely to replace, a HK$3.5 billion (US$450 million) five year facility completed by BOCI, BNP and HSBC in January 2001.
Officials close to the deal point out that the latest financing for the China Resource group, through CRE Finance (Hong Kong) in October last year, paid just 46.5bp to co-arrangers pledging HK$150 million (US$19.25 million) on its HK$3 billion (US$385 million) five year loan. Despite this similarity in pricing some syndicators in Hong Kong believe that the transaction should carry a premium due to the ongoing Sars crisis.
Market sources have suggested that other financings competing for investor attention are also not providing any yield pick up over their previous counterparts. These include the HK$5 billion (US$640 million) five and seven year credit for Hang Lung Properties that was launched late last week. Figures from Dealogic show that this deal is priced at an all-in of 45.5bp for five years and 54bp for seven. This is just inside the 51.6bp and 58.1bp split offered on its similarly structured HK$4 billion (US$513 million) fundraising from 2002.
Both of these borrowers have sought to form large underwriting groups willing to hold onto large tickets. This strategy has proved very effective for Hong Kong's blue chip community over the past couple of years and helped force pricing down to the levels evident today. Bankers in Hong Kong have long been complaining about this approach to syndication.
This seems to have had little effect, however, with nine banks signing up to Sun Hung Kai's recent deal, which was oversubscribed and increased from HK$7 billion (US$900 million) to HK$8 billion (US$1.025 billion). Market observers point out that bankers might be getting their message through as the formula for this deal was altered slightly.
Investors were offered a vastly superior commitment fee to the 15bp paid last time out increasing the attractiveness of the credit. Despite any misgivings syndicators agree that it is likely that the book for China Resources will be filled as there are few other opportunities for bankers to make their excess liquidity work.
Dealflow in Hong Kong has been restricted in 2003 due to the war in Iraq, the Sars outbreak and the general economic malaise. Dealogic data shows that just over US$3 billion has been raised in the first four months from 16 transactions.
In comparison over US$6 billion was syndicated in the same period last year highlighting the lack of activity in the Hong Kong dollar market. Some bankers are confident that the market will start to pick up again in the near term as many corporates have been asking for banks to pitch for deals. However even the most optimistic concede that many of these are operating on a wait and see policy with no form indications that they will proceed with the plan to raise funds.