Chinese G3 bond issuance speeds up

Another busy day but better pricing for investors as issuers make allowances for a heavy pipeline and the poor trading performance of recent deals.

Chinese issuance continued to pick up speed on Tuesday with dollar bond offerings for Chongqing Western Modern Logistics, Haikou Airport and Hong Kong-listed Road King Infrastructure. 

In a nod to a heavy new issuance pipeline and the subdued secondary market performance of recent deals, Tuesday's batch offered proper new issue premiums, which should help the market digest the paper.

The most surprising deal of the three was from Road King since it raised $450 million only four weeks ago. At the time, the deal was cited for its rarity value and the issuer for its professional Hong Kong-based management.

Its rapid re-appearance with an ever bigger deal may have caused some investors to re-brand it Road Kill rather than Road King but bankers said it assuaged some of their criticisms by using proceeds to repay more expensive debt rather than increase leverage. 

To balance out its opportunistic return to the market, the group also offered a reasonable new issue premium, which looks even better when pre-deal trading levels are taken into consideration. 

Initial guidance for the five non-call three Reg S deal was pitched at 5%. Shortly before final guidance was revised, the B1/BB- rated group had attracted an order book of $4.75 billion (lower than the $6.5 billion it achieved at the beginning of August).

Guidance was then revised down to between 4.7% and 4.75% before the $500 million deal was priced at par on a coupon and yield of 4.7%. Similar to early August, the issuance vehicle was RKI Overseas Finance with a guarantee from Road King Infrastructure.

The final order book closed at the $4.3 billion level of which 90% of demand came from Asia and 10% from Europe. By investor type, fund managers took 69%, private banks 25%, insurers 5% and corporates 1%. 

The group's recent 5% July 2019 deal was trading on a mid-yield of 4.25% on Tuesday. Syndicate bankers calculated the three- to five-year curve at 30bp, putting fair value around the 4.55% level. 

This equates to a 15bp new issue premium, although given the early August deal was trading around the 4.04% level a couple of days ago, there is scope for greater secondary market performance if they both settle down.

Earlier in the day, for example, sales desks noted that when dealers marked the existing bonds down, retail support kicked in. They also highlighted that Asia remains in risk-on mode despite Monday's sharp rally in US Treasuries, which moved from 1.64% to 1.56% over the course of the day.

This move benefited investment credit, with high yield softer. Yesterday's $300 million issue for Greenland Holdings traded just below its re-offer after it broke syndicate.

According to sales desks, last week's deals for China Orient and Korea's Hyundai Capital Services are also marginally under water after opting for aggressive pricing. 

Road King said it was using the proceeds of its last deal to redeem a $350 million 9.875% callable bond due 2017. Bankers said it will use proceeds from the new deal to pay down some syndicate loans and redeem a Rmb2 billion ($328 million) bond, which matures in December.

The group also has approval to raise up to Rmb2.5 billion from a Panda bond, although it is unclear whether this will now go ahead following its latest dollar foray. 

Joint global co-ordinators for Road King's dollar deal were DBS, HSBC and JP Morgan.

Chongqing Western

Tuesday also marked the launch of a debut $500 million issue by local government financing vehicle (LGFV) Chongqing Western Modern Logistics Industry Zone Development Construction Company. 

There was a fairly clear pricing benchmark since fellow Chongqing LGFV, Chongqing Na'an Urban Construction and Development, issued a $800 million three- and five-year deal in mid-July.

The key difference between the two lies in their respective ratings. Chongqing Western has a BBB rating from Fitch, while Chongqing Na'an has a BBB+/BBB+ rating. 

When Chongqing Western's deal was announced, Chongqing Na'an's 3.625% July 2021 deal was variously said to be trading on a G-spread of 202bp to 208bp.

Chongqing Western went out with price guidance of 250bp over Treasuries, building up a $3.8 billion order book with strong support from fund managers and sovereign wealth funds. 

Bankers said this dropped off to about $3.3 billion after guidance was revised. Final pricing was fixed at 99.407% on a coupon of 3.25% to yield 3.38% or 220bp over Treasuries. 

This means the new deal has offered a 12p to 18bp pick-up depending on where traders were quoting secondaries. Mizuho pitched fair value around the 215bp level, equating to a 5bp new issue premium, with 10bp to account for the rating differential. 

Credit analysts said the LGFV stands out from many of its peers because of its strong links to the Chongqing Municipal Government and the latter's strategic importance to China's One Belt One Road (OBOR) initiative. Indeed, Chongqing Western was set up in 2007 to develop a 35.5 square kilometre logistics city, which acts as a jumping off point for inland cities connected to OBOR.

On the flip side, Mizuho pointed out that net debt to Ebitda stood at 13.9 times at the end of 2015, which makes the group reliant on government capital injections for its financial wellbeing. 

Joint global co-ordinators for Chongqing Western's deal were DBS and Citi.

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