Hutchison returns with HK$3.8 billion refinancing

After two years away Hutchison asks Hong Kong bankers to tighten their belts another notch.

Arrangers Agricultural Bank of China, Bayerische Landesbank, BNP Paribas, China Construction Bank, Standard Chartered and Sumitomo Mitsui Banking Corp have joined forces to launch the HK$3.8 billion ($487 million) five year refinancing for Hutchison Whampoa. The borrower will be a special purpose vehicle and the deal will carry a guarantee from the parent.

Invitations have been sent out to potential banks, which will earn an all-in of 51bps as underwriters. Once the senior syndication phase has been completed a decision will be made regarding general syndication.

The borrowers last deal was a $750 million five year facility raised to part finance the Eur1.3 billion acquisition of Netherlands-based retailer Kruidvat Group priced at 53bp all-in to top level participants. Its last straight Hong Kong dollar financing was a HK$12 billion ($1.5 billion) loan arranged by BOCI Capital and HSBC back in July 2001 that paid just 48.7bp all-in.

Hutchison is on of Hong Kong's strongest blue chip corporates despite its downgrade from Standard & Poor's yesterday (Thursday) to A-. Dealogic figures show that the latest offering from Cheung Kong paid an all-in of 43bp for five years on its HK$2.4 billion ($300 million) credit signed in March.

Bankers were disappointed as they had expected the borrower to pay a premium over the market as this deal refinancing the HK$4.4 billion ($560 million) Hutchison Global Crossing transaction. Some syndicators who participated in the original deal commented that it would be difficult to toll over their commitments at this price level.

The project financing nature of the original deal ensured that the higher pricing and more structured cash flows which this corporate loan will not provide. That facility was completed in 2001 and paid 155bp for the five year portion and 186.6bp for seven year money.

Another factor that has made bankers wary of this credit is the collapse of the borrower's partner, Global Crossing, last year. This is a result of the deterioration of the cable and internet providers on a global scale with many struggling with lower than expected traffic volumes. Telstra and PCCW wrote down their investments on their similar joint venture, Reach, earlier this year as it failed to attain the projected traffic levels.

In addition creditors insisted that the parent companies inject further equity into the borrower to ensure it could meet future loan payments. So far, 2003 has been a very busy year in terms of fundraising for the Hutchison Whampoa group as it has issued bonds totalling $3.5 billion. Further to this it completed a $175 million five year loan through arrangers Bank of Tokyo-Mitsubishi, Credit Lyonnais and Standard Chartered for its Korean subsidiary.

Officials close to the deal say that while the pricing is low there should be no shortage of takers as the borrower has a wide and diverse investor base. They also point out that the sluggish dealflow and general economic conditions in Hong Kong will further boost investor appetite. Analysts agree to an extent saying that the parent guarantee means that banks will be buying corporate Hutchison risk.

As this transaction is priced outside the recently completed deals for Cheung Kong and Hang Lung they expect the market to respond in similar fashion to this deal. Responses are due by the end of June.