CLP Power Hong Kong priced a $500 million 10-year bond (rated A1 by Moody's and A by Standard and Poor's) early on Saturday morning. The senior unsecured notes were Reg-S registered and formally issued by CLP Power Hong Kong Financing with CLP Power Hong Kong as guarantor. The bonds were issued under CLP's $2.5 billion medium-term note programme and will mature on March 19, 2020.
They pay a 4.75% coupon and were re-offered at 99.077 for a yield of 4.8677%. The latter is equal to a spread of 115bp over the equivalent 10-year US Treasury yield.
Brayan Lai, a credit analyst with Credit Agricole CIB, argued that the bonds were expensive. "Hong Kong and China Gas (Towngas) 2018 was indicated around the 10-year Treasuries plus 105bp area, when CLP did their bonds," Lai said. "Adjusting the curve for an approximate 19-month duration extension from Towngas 2018 would indicate a fair-value of 130bp for CLP."
One source on the deal confirmed that Treasuries plus 130bp to 140bp was seen by many as fair value for the deal prior to the announcement. But by the time the initial guidance went out, the roadshow had brought expectations closer to Treasuries plus 125bp. This was later revised to 115bp to 120bp. In the end, the bonds came at the tight end of guidance at Treasuries plus 115bp.
The main benchmark comparables were Kowloon Canton Railway Corporation 2019 (a $750 million 10-year bond issued by the AA-rated name in May 2009) and Towngas 2018 (a $1 billion 10-year bond issued by the A-rated name in August 2008).
At the time of the CLP pricing, the KCRC 2019s were trading at mid-swaps plus 73bp, while the Towngas 2018s were at mid-swaps plus 145bp. With CLP printing at a final spread of Treasuries plus 115bp -- equal to mid-swaps plus 111bp -- it came slightly inside the mid-point between the two securities after adjusting for the maturity differences.
CLP tightened by 13bp to trade at 102bp over mid-swaps in the immediate aftermarket, outperforming other investment-grade bonds in terms of spread tightening by about 4bp to 5bp. This is a respectable performance given the small size of the transaction. However, the gains in the secondary market would have been underpinned by the overwhelming primary market demand for such a rare asset. As the borrower's requirements were for $500 million only, the issue size was not amended to meet the demand.
"It is not often that a blue-chip regulated utility comes to the Asian bond market, especially from Hong Kong with a strong A-rating," said a source. "Because of this, it was always expected that there would be a significant amount of interest in the deal."
CLP last came to market in 2002 when it raised $300 million from a 10-year issue. Therefore the current notes had scarcity value, which investors were happy to buy into.
Before the initial guidance was announced, the order book was significantly subscribed with indications of interest. As one banker said, "investors were clamouring pretty heavily for allocations before we'd even announced deal terms".
In the end, joint bookrunners Barclays, Citi, HSBC and Standard Chartered secured a final order book of $4.5 billion, or nine times the deal size. More than 200 accounts participated in the transaction.
The majority of the bonds were sold to Asian investors, who took 71% of the deal. Most of that went to investors from Hong Kong (37.5% of the total deal) and Singapore (30%). European investors were allocated 20%, while the remaining 9% went to offshore US investors.
In terms of investor type, 51% of the notes were sold to asset managers. Insurance and pension funds took 19%, banks attained 15%, retail and private banks accounted for 14% and corporate investors for 1%.
Although no official mandates have been announced, it is expected that Woori Bank -- rated A2 by Moody's and A- by S&P -- may soon announce price guidance for an upcoming bond. Bank of America Merrill Lynch, Credit Agricole CIB, Deutsche Bank, J.P. Morgan and Morgan Stanley are all expected to be on the deal. So far there has been no hint to the size or tenor.
Also in the pipeline are Indonesian companies Bank Mandiri and Pertamina, a state-owned oil and gas producer. Pertamina is expected to come to market with a $2.5 billion high-yield dual-tranche deal, with Citi, Credit Suisse and HSBC as bookrunners. Bank Mandiri -- rated Ba3 by Moody's, BB by S&P and BB+ by Fitch -- is also expected to issue a $300 million bond. As yet, there is no indication of the tenor for either of the Indonesian bonds.