Li Ka-shing’s HK Electric (HKE) executed its first benchmark dollar bond deal in just over five years on Thursday with an aggressively priced $750 million offering.
The 10-year Reg S transaction was timed to take advantage of a risk-on move in US Treasuries, which pushed investment grade credit tighter across the board on Thursday.
Both of Wednesday's new issues for BOC Aviation and the Federation of Malaysia tightened 8bp to 10bp in secondary market trading as US Treasury yields increased, with the 10-year Treasury closing New York trading on Wednesday around the 1.84% level.
However, the big drop off in HKE’s order book from a peak of $4 billion to close around the $2.5 billion level suggests many investors could not stomach the final price guidance, which was through the trading levels of one notch higher rated CLP.
A- rated HKE, which supplies power to residents on Hong Kong and Lamma Island, initially marketed its new deal at 135bp over Treasuries. This was then tightened to 2.5bp each side of 115bp over.
Final pricing was fixed at 98.910% on a coupon of 2.875% to yield 3.002% or 112.5bp over Treasuries, according to a term sheet seen by FinanceAsia.
The best comparable is A/A1 rated CLP Holdings, which has a $300 million 3125% May 2025 bond outstanding and a $300 million 3.375% October 2027 bond outstanding.
The former was trading on a mid price of 101.2% on Thursday to yield 2.968% or a G-spread of 112bp. The latter was trading on a mid-price of 101.63% to yield 3.204%.
The 23.6bp curve between two bonds, which are almost 1.5 years apart, suggests fair value for a 2026 CLP bond around the 3.008% level.
HKE itself also has a 4.25% December 2020 bond, which was trading Thursday at 109.25% to yield 2.133%.
Syndicate bankers reported participation from 180 accounts and commented that the ability to price inside CLP’s curve demonstrates investors’ appetite for blue chip names.
By investor type, fund managers took 46%, followed by banks on 30%, private banks 15% and insurance 9%. By geography, Asia accounted for 87%, while the remaining 13% went to European investors.
One Hong Kong-based credit analyst suggested fair value for the new 10-year bond should be at around 110bp over Treasuries. "HK Electric's new 2016 paper should trade 35bp wide of the company's 2020 bond to compensate for the 5.3-year extension," the analyst said.
One investor also thought demand for the issue should be fairly robust given the scarcity of non-property issuers in the dollar market. "The company is fundamentally sound with a solid credit history," the fund manager told FinanceAsia.
Indeed, HKE is an extremely rare and prized name for local investors although S&P says it rates CLP Power one notch higher because it is larger, has a more diversified fuel mix and stronger financials.
HKE was last in the bond markets in September when it issued a dual-tranche deal via BNP Paribas.
A $135 million 2035 tranche and $115 million 2045 tranche both had a zero coupon structure with initial call options in 2020 at respectively 125.216% and 126.417%.
Joint bookrunners for HKE’s new transaction were: Bank of America Merrill Lynch, BNP Paribas, HSBC, Mizuho Securities.
According to Dealogic, Qatar Investment, the Gulf state's sovereign wealth fund, bought a 20% stake in HK Electric Investment & HK Electric Investments Ltd. for $1.2 billion in June last year.
The deal allowed tycoon Li and his family to retain control of the utility business, which supplies electricity to about 600,000 residents in Hong Kong, and allow it to pursue acquisitions elsewhere.