Debt pipeline

Debt pipeline builds, but investors remain selective

For high-yield names, investors are demanding an attractive new-issue premium.
<div style="text-align: left;">
Car dealers Baoxin Auto and China Zhengtong Auto are among a long list of names talking to bond investors
</div>
<div style="text-align: left;"> Car dealers Baoxin Auto and China Zhengtong Auto are among a long list of names talking to bond investors </div>

The debt pipeline is building, with a few companies on the road last week and this week. These include a number of high-yield borrowers that are faced with a challenging environment as investors stay selective and demand an attractive new-issue premium.

The companies meeting investors this week include China Petrochemical Corp (Sinopec), which has mandated Citi, HSBC, BOC International, Barclays, Goldman Sachs, J.P. Morgan, Mizuho and UBS to arrange investor meetings for a potential dollar bond sale. Sinopec is a state-owned petroleum and petrochemical group established in July 1998.

A two-team roadshow started meetings on Friday in Hong Kong and is expected to conclude in New York and London in the middle of this week. According to a source, the company is eyeing a dual-tranche or even a multi-tranche dollar benchmark. The closest comparable would probably be Cnooc, which raised $2 billion through a 10- and 30-year bond late April.

Two Chinese auto dealers are meeting with investors. The first is Hubei-based Baoxin Auto, which has mandated Morgan Stanley and UBS for a potential dollar bond sale. The second is China Zhengtong Auto, which has mandated J.P. Morgan as sole global coordinator and bookrunner for a potential dollar bond sale. CCB International is a lead manager. Both companies are rated Ba3 by Moody’s and BB- by Standard & Poor’s (S&P).

Yanzhou Coal also met with investors last week for a potential dollar bond. Deutsche Bank and UBS are the arrangers. Yanzhou Coal is 53%-owned by Yankuang Group, an entity owned by Shandong State-owned Assets Supervision and Administration. It is rated Baa3 by Moody’s and BBB- by S&P and Fitch.

The Chinese high-yield sector has not made much of a convincing return — only a handful of better-known names such as China Shanshui Cement and Agile Property have tapped the market, indicating that investors are still wary of the sector, which means issuers have to pay up.

“I’m looking at a Yanzhou Coal and Zhengtong Auto and meeting with China Baoxin tomorrow,” said one investor last week. “Yanzhou Coal is kind of a quasi-sovereign name while Zhengtong Auto tried to do a deal last year, as well as a convertible bond, and didn’t manage to. It really depends how much some of these companies are willing to pay up. Some of the Chinese industrials are yielding 14% to 15%, which makes it hard for other industrials to come to market.

Investors are open to the right name at the right price. “Investors are willing to listen — it wasn’t like after Sino Forest when every Chinese credit was tarred by the same brush. But they are selective and looking for a decent new issue premium,” said one syndicate banker.

Away from China, financial services company Sun Hung Kai & Co has mandated UBS and Standard Chartered for investor meetings that start today. Sun Hung Kai & Co operates under Sun Hung Kai Financial and UAF Holdings with businesses that include wealth management and brokerage, capital markets, asset management, consumer finance and principal investments.

In Thailand, oil and gas company PTT Exploration & Production has mandated Deutsche Bank, Citi, UBS and HSBC to arrange fixed income investor meetings. Absent from the deal is Barclays, which handled the company’s $700 million bond deal on a sole basis last year. 

With so many borrowers in the market, being able to capture a clean window is important and investment-grade borrower Korea Western Power did just that early on Friday morning. The company priced its $500 million five-year bond at Treasuries plus 235bp, at the tight end of the final guidance of Treasuries plus 235bp to 240bp and about 15bp inside of initial guidance. The deal attracted an order book of $3.1 billion from more than 180 investors.

“We had a good window with no other competing issues. There were auctions in Europe and I think that put some other issuers off,” said one banker. In secondary markets, the bonds traded at Treasuries plus 228bp, 7bp tighter than the issue spread.

Korea Western Power had an outstanding $150 million bond maturing 2016 that was trading at Treasuries plus 240bp. The new Korea Western Power bonds priced 5bp inside of that, but the 2016s are illiquid. Other comparables include the Kosep 2017s which were at Treasuries plus 230bp and the Korea National Oil Corp 2017s which was at Treasuries plus 215bp. Barclays, J.P. Morgan, Morgan Stanley and Royal Bank of Scotland were joint bookrunners.

¬ Haymarket Media Limited. All rights reserved.