Chinese state-owned enterprise China Resources Gas early Friday morning printed its $750 million debut bond, which came at the tail end of a busy week. It also came amid growing nervousness about negative headlines out of China and Hong Kong, including the arrests of Sun Hung Kai Properties' co-chairmen Raymond and Thomas Kwok late last week in connection with an investigation into bribery offenses.
Despite this, CR Gas pulled off its debut bond in textbook style. The 10-year bond priced at Treasuries plus 260bp, at the tight end of the final guidance of Treasuries plus 260bp to 265bp and about 10bp inside the initial guidance, which was in the area of Treasuries plus 270bp. The bonds straddled the reoffer price in secondary trading.
CR Gas is a gas distributor that benefits from having a strong state-owned parent — China Resources Holdings, which is also the parent company for China Resources Land and China Resources Power. China Resources Holdings owns 68.4% of CR Gas. According to Fitch, the latter's ratings incorporate a one-notch uplift for potential support from its immediate parent as well as the ultimate majority owner, the China sovereign, which owns China Resources Holdings through the state-owned Assets Supervision and Administration Commission.
The main comparable for CR Gas's new bond was Beijing Enterprises, which focuses on public utilities. The Beijing Enterprises 2021s were trading at Treasuries plus 225bp on Thursday, which put fair value of a new Beijing Enterprises bond maturing 2022 at around Treasuries plus 255bp, according to one debt banker. CR Gas’s new, which matures on April 5, 2022, came 5bp back of that.
Beijing Enterprises is rated Baa1 by Moody’s and A- by S&P, while CR Gas is rated Baa1 by Moody’s and BBB+ by Fitch.
The deal gathered an order book of $4.6 billion from 286 accounts. There was a meaningful participation from US investors, which were allocated 35%. Asian investors got 51% and European investors 14%. Funds took up 56%, banks 16%, insurers 13%, private banks 8% and public investors 7%. The coupon was fixed at 4.50% and the notes were reoffered at 97.95 to yield 4.76%.
Elsewhere, New World China Land priced its Rmb2.8 billion ($444 million) debut dim sum bond, which was the largest dim sum bond by a property developer. There have been few property dim sum bonds issued due to the difficulty in remitting the funds back to mainland China and as a result, most Chinese developers have tapped the dollar bond market instead.
In New World China’s case, it is not clear if the company has the approvals in place to remit the funds. One source said that New World China is using the funds for general corporate purposes and is handling any remittances by itself. It has the option to swap the funds into dollars as well.
New World China Land is a China-focused property developer under the New World Group. The offering benefitted from a letter of support from parent company New World Development, a major Hong Kong property developer whose chairman is Cheng Yu Tung. However, this letter is not a guarantee and there is no legal recourse to New World Development should New World China default on the bonds. The issue is unrated.
The covenant package is not as tight as on most dollar bonds but there is a change of control put at 101 if New World Development's stake in New World China Land drops below 60%. New World Development currently owns 70% of New World China. There is also a letter of support put at 101 if New World Development withdraws its letter of support for New World China Land.
The coupon for the three-year dim sum was fixed at 8.5% — at the tight end of the initial guidance of 8.5% to 8.75%. The final order book exceeded Rmb4.8 billion from more than 80 accounts. There was strong participation from private banks, which took up 70%. Fund managers bought 15%, banks 9%, companies 5%, and insurance companies and sovereigns 1%. Hong Kong investors took 79%, Singapore investors 12%, Macau investors 6% and European accounts 3%. The bonds, which mature on April 11, 2015, initially slipped below the par issue price to 99. But by mid-morning they had recovered to around par.
BOCI and HSBC were joint bookrunners.