Citic Securities opts for credit-enhanced $800 million dollar debut

Mainland broker Citic Securities, which bought CLSA last year, issues an $800 million debut dollar bond.

China’s leading brokerage firm Citic Securities early this morning printed an $800 million dollar debut, in what was a late pricing for a Reg-S transaction.

The five-year bond had a standby letter of credit from Bank of China’s Macau branch. The bonds were issued by Citic Securities Finance and, in addition to the letter of credit, there was also a keepwell deed with Citic Securities Company, which, according to one source, gave even more structural protection with the intention of achieving tighter pricing.

The five-year bonds were marketed at Treasuries plus 200bp area, a pick-up of about 80bp over outstanding Bank of China bonds, which were trading at a spread of about Treasuries plus 120bp, after adjusting for the curve, according to a source. This was tightened to a final guidance of Treasuries plus 185bp to 195bp with the bonds pricing at the tight end of guidance.

Citic Securities is the latest borrower to issue a credit-enhanced bond. Such bonds enable companies to pay a lower coupon as its notes are supported by a more highly rated issuer in the event of a default. Credit enhanced bonds have become more popular of late, with troubled Indian wind turbine maker Suzlon Energy issuing one in March.

Citic Securities is rated BBB+ by Standard & Poor’s, so it is an investment-grade credit and could have tapped the market on own strength. This contrasts with Suzlon, which has defaulted on debt in the past. However, the company has clearly decided that it can get better pricing with the support of Bank of China. Thanks to the letter of credit, Citic Securities’ bond issue is rated A by S&P.

Compared to Suzlon Energy, which paid a spread of 175bp over State Bank of India, Citic Securities paid a much lower spread. But it is in much better shape than the former.

The mainland broker is a far more frequent issuer in the domestic bond market. It has a leading presence onshore in underwriting, asset management, securities lending and margin financing and is listed on both the Shanghai Stock Exchange and the Hong Kong Stock Exchange. However, it has also been growing its presence overseas — and notably, acquired CLSA last year for $1.25 billion, which might explain why it is issuing a dollar bond. A term sheet did not state the use of proceeds for the deal.

There were a grand total of 11 banks on the deal. Citic Securities International, Bank of China, Citi, HSBC and Standard Chartered are joint global coordinators and “active” bookrunners. Bank of America Merrill Lynch is an active bookrunner but not a global coordinator. Deutsche Bank, Credit Agricole, J.P. Morgan, Barclays, ABC International are bookrunners.

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