Hong Kong conglomerate Hutchison Whampoa returned to the euro-denominated bond market for the first time in nearly two years yesterday (June 22) with a €1 billion deal via ABN AMRO, Deutsche Bank and HSBC.
The 10-year transaction was a runaway success, attracting an order book that closed five-and-a-half times covered after a rapid four-hour bookbuild. In the process, the A3/A-/A- rated group not only managed to beat the PRC to bring the lowest coupon on record for an Asian borrower, but did so on the back of aggressive pricing.
Based on an issue price of 99.75%, the deal has a long first coupon set at 4.125% to yield 4.156%. This equates to 101.7bp over Bunds and 93bp over mid-swaps.
True to form, Hutch also paid reasonable fees. These came in at 37.5bp, the same as its last €1 billion euro deal of July 2003.
Over 300 investors are said to have participated in the deal, a significant increase over the 101 accounts reported in 2003. Observers say investors in 25 countries were allocated paper, with the order book showing a split of 78% Europe and 22% Asia. The UK was the biggest overall component, accounting for 35% of the entire book, with Germany second on 16%.
By investor type, funds accounted for 45%, banks 23%, insurance companies 18%, retail and corporates 7% and central banks and government-linked agencies 7%.
The benchmark for the deal was clearly Hutchison's outstanding 5.875% July 2013 deal. At the time of pricing, this was being bid at 97bp over Bunds and 82bp over mid-swaps.
Observers estimate there is roughly 7bp per annum on the curve, which means Hutch has priced a couple of basis points through its existing deal. It has been able to do so for a number of reasons.
Firstly the group has been absent from the international bond markets since November 2003 and most of its outstanding deals are trading at a significant premium to par, which makes them relatively unattractive to purchase outright. This means there was pent-up demand for the credit despite the liquidity of the Hutch curve.
The group played this well by being very clear about its size and pricing parameters. From the outset it stated its intention to borrow no more than Eu1 billion and at a price of 95bp over Euribor, plus or minus 2bp. Specialists say this clarity gave investors a lot of comfort about what they were buying into and enabled the order book to gain rapid momentum.
On a more fundamental basis, bankers argue that Hutch is still cheap on virtually every metric - rating and cash flows being the two most obvious. For example, Single-A and high triple-B rated conglomerates or telcos are currently said to be trading in a range of 45bp to 70bp over mid-swaps.
A/A+ rated Telstra priced a new 10-year deal a day before Hutch at 57bp over mid-swaps. Observers say it was the success of this deal, which persuaded Hutch to press ahead with one of its own and mandate the three leads yesterday afternoon Asian time.
So too, Baa1/A- rated Dutch telco KPN priced a 10-year deal euro offering last Friday at 73bp over mid-swaps, some 20bp tighter than Hutch despite a slightly weaker rating.
Relative to its own dollar curve, Hutch was flat to slightly tight. The group has a 6.25% April 2014 bond outstanding that was trading at 86bp over Libor. The new euro deal has been priced at roughly 90bp over Libor. This means it has come at a 4bp premium for a 15-month extension.
Hutch's secondary levels are nowhere near back to their tightest trading levels of the year so far - 45bp over Libor back in late February for the 2014 dollar bond. However, they have come in considerably since the group made its last euro foray.
At this point, it had to pay 208bp over Bunds and 197bp over mid-swaps.
Observers say Hutch decided to access the markets now because it saw underlying momentum in the market and wanted to complete a visible strategic trade. Proceeds are being used to re-finance existing debt.
Like many other borrowers, timing has also been partially dictated by a new European directive standardizing issue prospectuses, which comes into force in July. This will require borrowers to revise their existing MTN programmes and will consequently remove a large number from the market until the end of summer.
"No-one wants to risk waiting to see what market conditions are like towards the end of the third quarter," say one banker. "There's a lot of paper coming into the market ahead of the new directive and it's quite clear which deals are working and which aren't. Hutch has been one of the trades of the year."