State Grid Corp of China returned to the international bond markets on Wednesday with a new dual-currency, four-tranche bond offering denominated in US dollars and euros, raising a total of $2.1 billion.
The Aa3/AA/A+ rated utility achieved an order book of $6.5 billion for its five-year and 10-year dollar-denominated notes, while attracting €3 billion worth of orders for its euro-denominated bonds with maturities of six and nine years.
Investor demand for the new 144a/Reg S transaction easily surpassed an order book of $4.66 billion by state-owned oil group Sinopec in late April, highlighting abundant liquidity in the regional corporate bond market.
Pricing of each of the four tranches was tightened aggressively from the initial price guidance. The five-year and 10-year notes were initially marketed at 120bp and 150bp over Treasuries, before tightening at 95bp to 100bp for the former and at 125bp to 130bp for the latter.
Final pricing of the $500 million 2021 transaction was fixed at 99.925% on a coupon of 2.125% to yield 2.141%, while the $500 million 2026 note was priced at 99.055% on a coupon of 2.875% to yield 2.985%, according to a term sheet seen by FinanceAsia.
The closest comparables are its outstanding 2.75% May 2019 and 3.125% May 2023 notes, which were trading 119bp and 114bp over Treasuries, respectively, or on a G-spread of 104bp and 137bp.
For the euro tranche, the group initially marketed its six-year and nine-year at 140bp and 160bp over mid-swap, before tightening the former at 120bp to 125bp and the latter at 145bp to 150bp.
Final pricing of the €500 million 2022 bond was fixed at 99.758% on a coupon of 1.25% to yield 1.292%, while the €500 million 2025 note was priced at 98.982% on a coupon of 1.75% to yield 1.874%.
Bankers said the new bond issue would benefit from a direct guarantee from State Grid through a keepwell agreement between the onshore parent and offshore guarantor. "This will result in a 1 notch ratings uplift vs the existing bonds," one of the bankers said.
That represents a spread of 120bp and 145bp over mid-swaps, or 162.5bp and 188.2bp over German Bunds, for the six-year and nine-year notes, respectively.
The nearest comparables are its existing 1.5% January 2022 and 2.45% January 2027 notes, which were trading on a I-Spread of 130bp and 150bp.
The sale of euro-denominated bonds came after the European Commission cut its inflation forecast for the eurozone last year, bolstering speculation the European Central Bank will increase stimulus. The yield on the 10-year German Bunds fell to the lowest level amid a poor employment outlook.
The Beijing-based company will issue its new bond through wholly owned subsidiary, State Grid Overseas Development (2016).
"The Aa3 ratings are underpinned by State Grid's monopoly market position and stable financial profile, as well as expected very high level of support from the Chinese government, ” said Moody's In a note.
"We expect its credit profile and projected metrics to remain consistent with its current rating level on a standalone basis over the next three years," Moody's added. "The proposed bond issuance will strengthen its offshore financing channels to meet its capex and overseas investments.”
According to data provider Dealogic, the highly acquisitive company has been involved in almost $10 billion worth of acquisitions over the past three years, excluding debt.
This includes a $2.8 billion investment in a 35% stake in Italy's energy grid holding company CDP Reti. It is also reported by Reuters to be among a group of bidders for a 16% stake in Brazilian renewable energy firm Renova Energia.
Joint global co-ordinators for the new bond offering are BOC International, Goldman Sachs, HSBC, ICBC International and Morgan Stanley, while CCB International, Citi, JP Morgan, Mizuho Securities, Santander and UBS are joint bookrunners.