CNPC pushes out $2 billion bond to fund offshore forays

China's biggest oil company hits offshore markets with a triple tranche deal and is warmly welcomed by investors despite Fitch's China downgrade.

China National Petroleum Corp (CNPC), the country’s biggest oil company, closed a $2 billion triple-tranche US dollar bond early Wednesday morning. The company was wading into offshore debt markets for the third time and attracted a warm welcome from investors.

According to the prospectus, the proceeds will be used for its overseas operations. Investors expect proceeds from the debt raising to fund CNPC’s overseas M&A activities — an area in which the Chinese oil firm has certainly been active.

CNPC, one of China’s key state-owned enterprises, last month inked a $4.2 billion deal to buy a 20% stake in a Mozambique offshore natural gas field from Italian oil company Eni.

The company started marketing the deal on Tuesday and rating agency Fitch’s move to downgrade its long-term local currency rating on China to A+ from AA- that evening did nothing to dent demand.

“It was obviously not good news but the reasons for the downgrade were well publicised and well known by the market,” said one investor. “The long term foreign currency rating was affirmed at A+ and dollar bond investors tend to concentrate more on that.”

CNPC’s deal attracted a massive order book of $20.5 billion and the deal showed that investor appetite for longer duration bonds is apparently back. “The Bank of Japan easing measures have certainly helped markets,” said one source. “Investors are more reassured that rates will stay low. How long it will last is another thing, but we are seeing demand for long duration bonds return.”

The deal comprised a $750 million three-year piece, a $500 million five-year piece and a $750 million 10-year piece. Demand was skewed towards the long bonds, which attracted $8.8 billion of demand. In contrast, the three-year and five-year bonds attracted $5 billion and $6.7 billion of demand.

The three-, five- and 10-year bonds printed at Treasuries plus 115bp, 125bp and 165bp respectively. The strong demand allowed the leads to tighten guidance aggressively by 20bp for the three-year tranche, 35bp for the five-year tranche and 30bp for the 10-year tranche.

In secondary markets, the bonds performed with the CNPC 2016s quoted 2bp tighter, the CNPC 2018s quoted 7bp tighter and the 2023s quoted 4bp tighter.

For the 10-year tranche, Asian investors were allocated 46%, US investors 35% and European investors 19%. For the five-year tranche, Asian investors were allocated 53%, US investors 24% and European investors 23%. For the three-year tranche, Asian investors were allocated 44%, US investors 42% and European investors 14%. The deal saw strong participation from fund managers.

Citi and ICBC International were joint global coordinators and bookrunners. Barclays, BOC International, Bank of America Merrill Lynch, Credit Agricole, Deutsche Bank, HSBC, J.P. Morgan, Morgan Stanley and Standard Chartered were joint bookrunners.

¬ Haymarket Media Limited. All rights reserved.
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