Hutchison Whampoa, controlled by Hong Kong billionaire Li Ka-shing, tapped the senior bond market early Wednesday after a hiatus of nearly two years, raising a total of $5.4 billion in one fell swoop.
Hutchison, a sprawling blue-chip conglomerate that operates ports, telecommunications and infrastructure, achieved what few Asian borrowers can do. The company raised $3.5 billion through a dual-tranche US dollar bond and, concurrently, tapped the euro market with a €1.5 billion bond.
The deal was executed within a 24-hour period. The US dollar bond was announced on Tuesday morning, with bookbuilding starting in Asia, and after assessing the markets in Europe the leads added the euro tranche.
“Coming to the market at one go meant that the market risk was reduced and it was also clear to investors that they were tapping both the dollar market and the euro market as opposed to coming back a second time,” said one source familiar with the deal.
Despite the jumbo size of the deal investors piled in their orders. The dollar bond tranches attracted over $10.7 billion worth of orders and the euro tranche attracted €5 billion worth of orders. The company tapped the market with tenors of three, seven and 10-years, spreading out its maturity profile.
Pricing was at the tight end of final guidance. The $1.5 billion 10-year bond priced at Treasuries plus 135bp, with guidance set at Treasuries plus 135bp to 140bp, while the $2 billion three-year bond priced at Treasuries plus 88 basis points.
The €1.5 billion seven-year bond priced at mid-swaps plus 68bp, compared with guidance of mid-swaps plus 68bp to 72bp. The coupon was a mere 1.375% and given that Hutchison has assets in Europe it is not expected to swap the proceeds into US dollars.
A key reason why Hutchison was able to lock in such a low coupon on the euro bond was because yields on German bunds have sunk to ultra-low levels. The seven-year bund is yielding only 0.4%, which meant that Hutchison's bonds still offered a significant yield pick-up.
The euro bonds were predominantly sold to European investors and 80% of the bonds were allocated to fund managers and hedge funds, with insurers taking 13%, banks 4% and other investors 3%.
The three-year dollar bonds were heavily sold to US investors which were allocated 72% of the issue. The short tenor appealed to US money managers. In contrast, US investors were allocated 42% of the 10-year bonds.
Rarity value, maturing debt
The fact Hutchison is a blue-chip borrower and that its bonds are hard to come by helped ensure strong demand for the sale and a solid market debut.
"The old Hutch bonds are very illiquid and it's hard to get hold of the bonds. So investors continue to add the bonds in secondary," one Hong Kong-based fund manager said. “It’s a big deal and they tightened guidance aggressively but it’s still trading tighter.”
The company's new 2024 and 2021 bond issues both traded 3bp tighter on Wednesday.
The big question is what Hutchison now plans to do with the money. According to the source familiar with the deal, the funds will likely go towards refinancing existing debt.
Hutchison has a few batches of bonds maturing next year including a €600 million bond, a $2.2 billion US dollar bond and a £325 million bond.
However, according to a fund manager, Hutchison did not say what the funds would be used for, which has led to speculation among investors.
Hutchison is selling assets in Hong Kong and making acquisitions in Europe, from utility companies to telcos. In May, the European Union approved its subsidiary Three's acquisition of O2 in Ireland. Hutchison has so far invested over €1.1bn in the Three Irish business and plans to invest €300 million to build a 4G network over the next three years, the company said in a release at the time.
Citi, Goldman Sachs, HSBC and Bank of America Merrill Lynch were joint bookrunners for the dollar bond. The company retained HSBC and Goldman Sachs for the euro deal, alongside Barclays, Credit Agricole and Deutsche Bank.