Chinese borrowers raise multi-tranche bonds

BOC is raising a capped $600m dual-tranche offering, while Alibaba is expected to sell an $8b multi-tranche jumbo on Thursday, buoyed by strong investor sentiment.

Bank of China, the country’s fourth largest lender, is the latest Chinese issuer to launch a multi-tranche bond, capturing the interest of investors who are still keen to add on high-quality exposure to their books before year-end.

The three- and five-year tranches of BoC's Reg S-only capped $600 million dual-tranche offering  have initial price guidance of Treasuries plus 170bp and 180bp area respectively, according to a term sheet seen by FinanceAsia.

“Typically around this time investors might be thinking about closing up books but the market is still strong,” said a Hong Kong-based syndicate banker away from the deal, adding that demand is strong generally for repeat issuers and high-quality names. “There are still opportunities to buy bonds and to make money in the markets.”

The overall JP Morgan Asia Credit Indices (JACI) has gained 28bp month-to-date but the same could not be said for the JACI High-Yield index, which has lost 22bp month-to-date.

Following BOC’s lead would be Alibaba multi-tranche jumbo, which could come as early as Thursday. The group is preparing to launch Asia’s largest ever bond offering, with global road shows ending on Wednesday in New York.

Alibaba’s debut dollar-denominated 144a transaction could raise up to $8 billion and the preliminary offering prospectus suggests the issuer will launch a floating rate note and four tranches of fixed rate bonds across the entire yield curve.

Additionally, US Treasury yields continue to hover around favourable levels, falling on Tuesday after a core inflation measure showed just a tepid 0.1% rise in prices last month. This suggests that the Federal Reserve could take its time in raising interest rates.

On Tuesday, benchmark 10-year US Treasury notes fell to 2.32% from 2.34% late Monday, according to Bloomberg data.

Alibaba has mandated Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, JP Morgan and Morgan Stanley. Co-managers will be BNP Paribas, DBS, HSBC, ING and Mizuho.

BOC’s offering

BOC’s proposed bond, raised by its wholly owned subsidiary Amipea, is guaranteed by Bank of China, Macau branch.

The closest comparables for the three-year tranche includes its existing 2016 notes and BOC HK’s outstanding 2017 paper, which were trading at a G-spread of 140bp and 130bp prior to announcement.

Meanwhile, the closest comparables for the five-year instrument includes BOC HK’s existing 2019 notes, which were trading at a G-spread of 145bp.

Credit analysts see fair value around the Treasuries plus 148bp and 160bp for the three- and five-year bonds respectively, and suggest investors not to chase this deal if it ends up pricing tighter than 155bp and 170bp respectively.

“Inside those levels, we start to see better value in SBLC [standby letter of credit]-backed paper,” said the Hong Kong-based fixed income analyst, adding that the supply of Chinese financial sector supply is coming “thick and fast”.

Since October 1, Asia ex-Japan has seen a total of $14 billion from Chinese banks, according to Mizuho Securities in a report on Wednesday.

BOC is the global coordinator and bookrunner of its latest A rated dual-tranche bond. Other bookrunners include JP Morgan and UBS.

CNPC bond

Meanwhile, China National Petroleum Corp raised a $1.5 billion triple-tranche bond on Tuesday night, making use of China’s State Administration of Foreign Exchange’s relaxation on rules governing cross-border guarantees.

“Whenever CNPC came in the past, they came with a keepwell structure,” said a source familiar with the matter. “They’re using a direct guarantee for the first time and have also set up a $7 billion MTN [medium-term note] programme, enabling them to issue fairly nimbly in the market.”

As a result of this direct guarantee, CNPC obtained a ratings upgrade from Moody’s from A1 to Aa3 on Tuesday. The rating agency said that such an explicit guarantee provides bondholders with stronger protection than a keepwell agreement, which has uncertainties over its legal effectiveness in China.

The rules — part of China’s attempt to loosen capital controls — became effective on June 1 and allow onshore companies to register cross-border payment guarantees with Safe rather than seek the regulator’s approval.

The energy company’s fixed-rate $500 million three- and $700 million five-year notes priced at the tighter end of their final guidance at Treasuries plus 107.5bp and 120bp respectively, which is 27.5bp and 30bp tighter than their initial pricings respectively, according to a term sheet seen by FinanceAsia.

CNPC also issued a $300 million floating-rate note, which priced at three-month Libor plus 89.5bp and equivalent to the three-year fixed.

The nearest comparables for CNPC’s three- and five-year paper were its existing 2017s and 2019s, which were trading at a G-spread of 123bp and 129bp respectively prior to announcement, according to the source. The other comparables include Sinopec’s 2017 and 2019 notes, which were trading at a G-spread of 107bp and 125bp respectively.

This indicates that the issuer was able to re-price its entire curve and price through Sinopec’s curve as a result of its direct guarantee from Safe. Proceeds will be used to repay its existing offshore loan.

HSBC, Standard Chartered, Citi and Societe Generale were the joint global coordinators, lead managers and bookrunners of CNPC’s deal. Other lead managers and bookrunners include Bank of China, Credit Agricole and Morgan Stanley.

¬ Haymarket Media Limited. All rights reserved.