Haitong Securities, China’s largest securities house by net profit, will start bookbuilding for a bond issue on Friday, aiming to raise Rmb12 billion (US$1.97 billion).
The notes comprise of three tranches: a Rmb7 billion 3-year bond, a Rmb2 billion 5-year and a Rmb3 billion 10-year. The guidance was set at 5.75%-6.15%, 5.77%-6.17% and 5.8%-6.2%, respectively.
The sizes of the three tranches are tentative and can be clawed back. Each tranche will have a fixed coupon and the final prices will be settled on Friday.
Haitong’s bond issue comes to the market amid tough market conditions.
Bond yields have been rising since early November because of a credit squeeze in the market. The recent 10-year government bonds issued by the Ministry of Finance were priced at 4.7121%, the highest yield for eight years.
In the inter-bank market, the dominant market for China’s bond issues, more than 20 companies have shelved their offering plans since November.
Haitong’s surprising tap of the onshore market highlights the strong need of Chinese brokerages for capital to expand into new businesses.
Traditional brokerage and investment banking businesses have been pressured because of a volatile stock market and a government freeze in the initial public offerings.
Haitong Securities plans to use the proceeds to boost its leverage ratio, which is about 1.6 times, a middle level among the peers.
It is also under increasing pressure from shareholders for higher returns, according to sources.
“Especially after the company listed in the H-share market in April, the company feels more pressure from offshore shareholders,” said a source familiar with the situation.
The deal represents the first batch of Haitong’s Rmb23 billion corporate bonds plan approved by China’s Securities Regulatory Commission. The remaining Rmb11 billion will be used up in two years.
Citic Securities and Credit Suisse Founder Securities acted as lead managers on the transaction.