Hutch docks euro bond after issuance drought

Li Ka-shing's ports-to-telecoms conglomerate raises €2 billion through the sale of a dual-tranche euro-denominated bond.

CK Hutchison Holdings, controlled by Hong Kong billionaire Li Ka-shing, ended an 18-month issuance drought on Tuesday with a €2 billion ($2.27 billion) euro-denominated bond offering.

The deal marks the first transaction since Hutchison Whampoa and Cheung Kong Holdings were formally merged in March 2015, creating a blue chip conglomerate that operates across ports, telecoms, retail, energy and infrastructure.

For most of the past two decades Hutch has been Asia’s pre-eminent international borrower with a very strong reputation for leaving a few basis points on the tables so its deals trade well in the secondary market.

One fund manager told FinanceAsia Hutch tightened pricing pretty aggressively on the new seven- and 12-year deal against a backdrop of illiquid secondary market spreads.

However, syndicate bankers said both tranches offered new issue premiums in contrast to the two other investment-grade rated dollar deals from Asia, which also priced on Tuesday.

The final order book for the A3/A-/A- rated deal closed around the $4 billion level, with a heavy skew to the seven-year, which attracted two-thirds of demand.

Pricing for both the seven- and 12-year paper came at the tight end of final guidance.

The group initially marketed the seven-year transaction at 125bp over mid-swaps, before tightening guidance by 10bp to 15bp.

Final pricing of the €1.35 billion April 2023 offering was fixed at 99.688% on a coupon of 1.25% to yield 1.297%.

This represents a spread of 110bp over mid-swaps, or 154.8bp over German Bunds, according to a term sheet seen by FinanceAsia.

The 12-year notes were initially marketed at 150bp over mid-swaps, before guidance was tightened to 2bp either side of 140bp.

An €650 million April 2028 issue was priced at 99.641% on a coupon of 2% to yield 2.034%. This represents a spread of 138bp over mid-swaps, or 193.6bp over Bunds.

Syndicate bankers estimated fair value for the seven-year transaction at between 100bp to 105bp over mid-swaps, and the 12-year at 125bp to 130bp over.

This means the new issue premium for the seven-year is about 5bp to 10bp and 8bp to 12bp for the 12-year.

Bankers said the seven-year was more popular because investors believe European policymakers will continue to adopt an ultra-loose monetary policy and keep the euro weak to offset the impact from any slowdown in emerging markets. “Investors still believe the euro will continue its weakness against the dollar,” said a source familiar with the transaction.

Adding to jitters about economy recovery, yields on German bunds have dropped to ultra-low levels. Yields on 10-year Bunds dropped to 0.1% for the first time in almost a year on Tuesday, in part due to an expanded version of the European Central Bank’s quantitative easing programme.

It is boosting its monthly bond purchase of eurozone debt by a third to €80 billion staring from April.

Syndicate bankers said the latest deal expands Hutch’s euro yield curve by six years, increasing its financial flexibility in the face of Europe’s prolonged low growth environment.

The company's nearest euro-denominated comparables comprise; a 1.375% 2021 note and 3.625% 2022 note. The former was trading Tuesday on an I-Spread of 98bp and the latter at 92bp over.

The new deal was predominately sold to European investors, who accounted for more than 70% of the entire transaction the syndicate banker commented.

Euro-focused group

The banker added that Hutch plans to use proceeds to refinance €2.4 billion in bonds, which mature this year. The group has an €1.75 billion 4.75% note maturing in November and a €669 million 4.625% note maturing in September.

"The company intends to keep its proceeds in euros and doesn't seek to swap back into US dollar because of the refinancing need," the banker added.

Indeed, thanks to the merger, the majority of its Ebit is now derived in euros.

According to its online roadshow, the group generated 56% of 2015 Ebit from Europe, of which 37% came from the UK. A further 14% came from China, 5% from Hong Kong and the remaining 20% from the rest of Asia including Australia.

By industry type, 38% of Ebit comes from infrastructure, 23% from telecoms, 20% from retail, 13% from ports, 3% from energy and 3% from financing.

The group has five main arms including: HPA Ports, the world’s largest private container operator; AS Watson, Europe and Asia’s largest beauty retailer by number of stores; CKI its infrastructure arm; Hutchison Telecom, Husky Oil and other, which includes CK Life Sciences and TOM group.

At the end of 2015, it recorded gross debt of HK$288 billion ($37.13 billion) and a net debt to total capitalisation ratio of 23.7%. In its online roadshow it also said it has liquid assets of HK$131 billion, sufficient to pay off all debt through to 2018.

Joint bookrunners for the latest Hutchison deal were Bank of America Merrill LynchBarclaysCredit Agricole and HSBC.

¬ Haymarket Media Limited. All rights reserved.