The Hong Kong-listed bad-loan manager — rated A3/A-/A by Moody's, Standard & Poor's and Fitch — raised $3.2 billion through the sale of a perpetual non-call five bond, getting huge demand from global investors.
The Reg-S bond was launched on Friday morning, and quickly generated orders of more than $10 billion. Bankers said this was partly helped by widespread investor appetite for new deals, which they hope will keep supply chugging along in the coming weeks. But the response to China Cinda's bond was much stronger than some recent transactions.
"The new print is poised to be the landmark deal of the year given its size and complexity for a non-bank institution," said a syndicate banker familiar with the deal. "Even though the company is a household name in China, we should not underestimate the level of difficulties to get everything done seamlessly."
One of those difficulties was overcoming scepticism from some investors about the structure of the bond. China Cinda has not included a step-up after five years, when the bond becomes callable for the first time. That gives the issuer less incentive to redeem the bond if it cannot find a cheaper source of replacement capital.
A fund manager in Singapore said that Cinda's AT1 debt was a "special type" in the bond market, offering less-friendly terms than Chinese banks offer when tapping offshore investors for capital.
"We should remember that Cinda is a bad-debt manager, but its initial pricing is on par with Chinese banks' outstanding AT1 debt,” the investor said.
Bankers set initial guidance for the bond at the 4.5% area, before telling investors it would price somewhere between 4.45% and 4.5%. It priced at the lower-end of that range, giving investors a yield equivalent to 329bp over Treasuries, according to a term sheet seen by FinanceAsia.
In the event of financial distress, the issuer has the option to write off the AT1 debt completely or convert the debt into its Hong Kong-listed shares at HK$3.35 per share if the China Banking Regulatory Commission, Ministry of Finance and the People's Bank of China declare that the company is not viable.
Since Cinda's bond was a market-opener, the leads did not release any pricing comparables to the market. But one banker familiar with the deal said the outstanding AT1s of ICBC and China Construction Bank provided the best measure.
ICBC Asia's outstanding 4.25% $1 billion bond was trading at a bid price of 99.727, equivalent to a yield-to-call of 4.355%, on Friday. CCB's 4.65% $3.05 billion note was trading on a bid price of 102.786 to yield 3.987%. The former is callable on July 21 2021, while the latter is callable on December 16 2020.
Based on the secondary prices of these bonds — and taking into account its more aggressive structure — Cinda appeared to have priced the deal aggressively. For that reason, it limited the size of the bond to $3.2 billion, after initially telling investors it would be capped at a whopping $4.45 billion.
By any definition, however, this was a mega-deal. Cinda's AT1 easily surpassed Sinopec's $3 billion three-tranche bond early Friday morning, making it the largest US dollar denominated debt sale by a Chinese issuer this year, according to data provider Dealogic.
Bank of America Merrill Lynch, Cinda International, BOC International,Goldman Sachs, and HSBC were the joint global coordinators of the bond. The deal also came with an exhaustive list of joint bookrunners, although none of them helped build the books.
The joint bookrunners were CMB International, CICC Hong Kong Securities, Standard Chartered, Wells Fargo Securities, UBS, CCB International, ICBC International, China Merchants Securities Hong Kong, ABC International, BOSC International, BOCOM HK Branch, CITIC CLSA Securities, Haitong International, China Everbright Securities (HK), Essence International, Morgan Stanley and Citi.