Chinese duo tap dollar debt market despite distraction

As President Xi Jinping gives his keynote speech in Beijing, Tewoo Group and Maoye International issue short-dated debt, exploiting a loophole to tap international markets.

Two small Chinese companies joined a recent rush of short-term borrowings, shrugging off political distractions to raise a combined $800 million in bond issues.

Commodity trader Tewoo raised $500 million and department store operator Maoye International brought in $300 million, with both notes maturing within a year – a legal way to bypass the regulatory approval process set by the National Development and Reform Commission, the watchdog for overseas debt issuance.

"We don't see the regulators shutting the door on issuers who are looking to issue short-dated debt,"  a Chinese debt banker with a US investment bank said.

The deals stood out not just because they were competing for investor attention with at least five others in the regional G3 market, but also because they came at the dawn of China's biggest political showpiece in five years – the Communist Party's 19th Congress.

The successful issues were a sign that the political theatrics – which will see the party unveil its new leadership team for the next five years – have not taken investors' eyes off the regional capital markets.

As one Hong Kong-based investor put it: “The meetings in Beijing are about politics more than policy that can swing the market, and the Party will lay out some long-term goals rather than short-term stimulus package.

“Investors are most concerns with the pace of reform in state-owned enterprises, excessive lending in corporate sector and a property bubble,” he added.

Tianjin-based Tewoo attracted more than $3 billion of orders from 139 accounts, post-deal statistics show. Concurrently, Hong Kong-listed Maoye International captured $1.7 billion of demand from 170 accounts.

On Tuesday, Tewoo, rated BBB- by Fitch, went out with initial price guidance at the 4.125% for the 359-day note, before narrowing the final guidance to 5bp each side of 3.75%. Final pricing for the Reg S bond was fixed at par to yield 3.7%, according to a term sheet.

In terms of fair value, the commodity trader’s outstanding $300 million 2019 note was trading on a cash price of 101.41 to yield 3.81%, suggesting the new deal was priced without paying any new issue concession.

For Maoye International, the single B-rated company adopted a more investor-friendly approach for its issue, after it decided in August to withdraw the sale of some of its commercial property units in China due to regulatory issues.

Maoye issued the 364-day note at 7%, compared with its initial price guidance between the 7.375% to 7.5% area.

Bankers used China Singyes Solar Technologs’s outstanding 6.75% October 2018 note as a valuation benchmark. The note was trading at 100.15 to yield 6.59% on Tuesday, implying Maoye paid a new-issue concession of about 40bp.

¬ Haymarket Media Limited. All rights reserved.
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