Chinese issuers stampede G3 bond market

Chinese issuers descend on force ahead of almost week-long public holidays across Asia.
Bull in a China shop
Bull in a China shop

The Asian G3 bond pipeline almost emptied in one day on Thursday when five Chinese issuers disgorged $2.2 billion worth of new paper onto the market.

Counterbalancing the large number of issuers were the relatively small sizes of the transactions, which should stand the secondary market in good stead. Bankers said the quintet chose to issue on the same day because they were conscious of how many public holidays there are across Asia next week.

Singapore and Hong Kong top and tail the week, while Korea is off Wednesday, Thursday and Friday celebrating the Chuseok harvest festival.

One syndicate banker also commented, "Issuers have been piling in, taking advantage of recent spread tightening. We’re expecting heavy supply in the dollar market during the fourth quarter."

Thursday’s new issuance was led by two frequent borrowers; state-owned bad-loan manager China Huarong and BOC Aviation and three debut borrowers; China Everbright Bank, Union Life Insurance and industrial imaging products company Yestar.

Huarong AMC

China Huarong Asset Management returned to the dollar bond market in less than four months on Thursday, raising $500 million from the sale of a perpetual non-call five-year deal.

The A3/A-/A rated company sold $2.5 billion of bonds in May and separately applied for a Shanghai listing in June, as it continues to seek funding to diversify its business model into wealth management.

The peak order book built to an impressive $6.8 billion level thanks to its strong brand name among investors. "The market favours high grade credits and Huarong falls into the category," one syndicate banker said. 

Initial guidance was pitched around the 3.25% area, before being narrowed narrowing to between 2.875% and 3%. Final pricing of the Reg S deal was fixed on par to yield 2.875%, according to a term sheet seen by FinanceAsia.

The issuance vehicle was Huarong Finance II with a keepwell and guarantee structure from China Huarong International Holdings, which meant the issue had a one notch lower rating of Baa1/A- from Moody’s and Fitch.

Huarong is able to call the bonds at par in September 2021 and at every distribution date thereafter. The bonds also reset at five-year Treasuries plus an initial credit spread of 170.9bp and a 500bp step up in year five.

The latest deal will rank equally with Huarong's other senior dollar bonds, but its distributions are deferrable, but cumulative and compounding, meaning the company cannot pay paying dividends if distributions are in arrears.

The closest comparable is Huarong’s outstanding 3.25% June 2021 bond, which was trading on a G-spread of 154bp on Thursday according to syndicate bankers.  

They also flagged China Railway's 3.95% perpetual non-call August 2019 note, which was trading on a G-spread 185bp. And its 3.5% May 2023 bond, which is trading at 147bp, some 38bp tighter but four years long.

One syndicate banker suggested fair value for Huarong deal should be around the 3% level. The group may get away with tight pricing in part because of its particularly large syndicate group, many of whom were investors in the deal.

The final order book closed at $3.3 billion from 166 accounts. By region, Asia took 87% and Europe accounted for 13%. By investor type, fund managers were allocated 69%, while banks took 18% and private banks 7%, insurers 2%, corproates 3% and sovereign wealth funds 1%.

Joint global coordinators were HSBC and Huarong Financial, while ABC International, ANZ, Bank of China, BOCI, CCBI, CITIC CLSA Securities, China Minsheng Bank Hong Kong branch, Commerzbank, Credit Suisse, Goldman Sachs, Morgan Stanley, Standard Chartered and Wing Lung Bank were joint bookrunners.

BOC Aviation

The aircraft leasing unit of Bank of China resumed its fundraising efforts on Thursday less than five months after its last $750 million deal and four months after is $1.1 billion Hong Kong Stock Exchange listing in May.

The new $500 million five-year Reg S/144a deal garnered more than $3.8 billion of orders by the time pricing guidance was revised, according to one syndicate banker.

Initial guidance was set at 165bp over Treasuries, before being tightened to between 135bp and 140bp over. Final pricing of the deal was fixed at 99.458% on a coupon of 2.375% to yield 2.491%, or 135bp over five-year Treasuries, a term sheet shows.

The closest comparables are its outstanding 3% March 2020 and 4.375% May 2023 notes. These were respectively trading on G-spreads of 125bp and 160bp suggesting a 35bp curve and fair value around the 135bp level, which suggests almost no new issue premium.

"The issuer decided to tap the market because demand is strong," one banker added. "It was a pretty successful deal given the level of competition in the market today."

Non syndicate views ranged from fair to tight pricing, with all acknowledging strong secondary market demand for aircraft leasing paper, which should ensure a successful secondary market debut.

The final order book finished at $3.8 billion from 226 accounts. By region, Asia took 53% and Europe accounted for 16% and US 31%. By investor type, fund managers were allocated 64%, while banks 21% and insurers/pension 10%, private banks and other the remaining 5%.

Joint bookrunners were BNP Paribas, BOC International, Citi, DBS, HSBC, JP MorganWells Fargo Securities.

China Everbright Bank Hong Kong Branch

The Baa2/BBB rated lender captured more than $4 billion in demand (including joint lead manager orders) for a $500 million Reg S deal by its Hong Kong branch.

Initial pricing was pitched at 150bp over Treasuries, before being tightened to 120bp over. Final pricing of the September 2019 issue was fixed at 99.786% on a coupon of 2% to yield 2.074% or 120bp over, according to a term sheet seen by FinanceAsia.

A total of 93 accounts participated with Asian investors taking 86% and Europe 14%.

Banks were allocated 82%, while asset managers/fund managers took 16%, sovereign wealth funds and insurers 2% and private banks the remaining 1%.

Bankers said investors benchmarked the deal against Baa1/BBB+ rated China Merchants Bank's 3.25% August 2019 deal and Baa1 rated Shanghai Pudong Bank's September 2018 deal. These were respectively yielding 2.09% and 2.03%.

One syndicate banker estimated fair value for the new deal at the 2.125% level given the credit rating differential between the two lenders.

Its ability to price through this is testament to its novelty value. Again, the large syndicate suggests the paper will also disappear in the secondary market.

Joint global coordinators were Citi, China Everbright Bank Hong Kong branch, CEB International and Bank of China Hong Kong. Joint bookrunners were BOC International, BOCOM HK Branch, Bank of America Merrill Lynch, China Construction Bank Asia, ICBC International, OCBC Bank and Wing Lung Bank.

Union Life

Thursday also saw the debut for Union Life, China’s 20th largest life insurer in China by premiums. It captured a peak order book of $1.75 billion, which is not bad considering it is much smaller than has less public disclosure than bigger publicly listed groups such as Ping An and China Life.

The parent has a Baa2 rating from Moody's, but the issue carries a Baa3 rating because the bonds are subordinate to policyholders and is therefore edging close to crossover territory.

Initial guidance for the five-year Reg S deal went out at 245bp over Treasuries, before being tightened to between 220bp and 225bp.

Final pricing was fixed at 98.41% on a coupon of 3% to yield 3.348%, or 220bp over Treasuries, according to a term sheet.

Distribution stats show that the final order book closed at the $1.2 billion level with 96% placed in Asia and 4% in Europe. By investor type, 41% went to funds, 46% to banks, 6% to corporates, 5% to private banks and 3% to other.

The closest comparable was Sunshine Life's 3.15% 2021 bond, which was trading on a G-spread of 169bp.

Sunshine Life has a two-notch higher Baa1/A- rating, which suggests the need for at least 20bp in addition premium. Credit analysts and sales desk described Union Life’s pricing as decent but also highlighted the company’s limited operationg history.

In a report published on September 2, Moody's said the company's financial flexibility is “weak relative to its peers, given the limited capacity of its major shareholder."

According to a sales note from a non-syndicate bank, it recommended not to buy into the bond despite its attractive pricing. "We can’t quite bring ourselves to recommend taking exposure to a small, privately-held Chinese life insurer with a short track record and history of volatile earnings," it said.

Joint global coordinators were HSBC, ICBC International and Morgan Stanley, while BOC International and CNCB Hong Kong Capital were joint bookrunners. 

Yestar International

A third debut issue from high yield credit Yestar attracted a $600 million peak order book.

Initial guidance for the Ba3/BB-/BB- rated issuer was set at the mid 7% level before being narrowed to 10bp either side of 7%.

Final pricing of a $200 million five-year non-call three deal was executed at par with a coupon and yield of 6.9%.

Bank of America Merrill Lynch was sole co-ordinator with Credit Suisse, Deutsche Bank and Haitong International as joint bookrunners.

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