Exotic bonds

Intime and Thailand access alternative bond investors

Intime Department Store taps the high-yield dim sum market, while Thailand addresses inflationary fears with its first inflation-linked bond.

Asia’s primary debt markets took on an exotic flavour at the end of last week. Signs emerged that Chinese high-yield borrowers might make a sustainable return, while Thailand met investors’ anxieties about rising consumer prices by issuing its first inflation-linked bonds.

Intime Department Store Group raised Rmb1 billion ($155 million) through a three-year dim sum bond in the offshore renminbi market. It was the first issue from a non-state linked Chinese high-yield borrower in any currency since the controversy over Sino-Forest blew up in early May. It was also the lowest coupon to date for a high-yield issue in the dim sum market.

The notes pay a 4.65% coupon with a maturity date of July 21, 2014 and were re-offered at par.

The dim sum market has grown rapidly but is still less than a year old. Price discovery for new issues is still more of an art than a science, with no clear benchmark rates or other reference points — although the 1-year CNH time-deposit, quoted at 0.6% on Friday, might eventually take that role.

For now, broadly comparable issues can provide some guidance and a clearing price is eventually determined after discussions with investors.

The lead managers, Citi and Nomura (on its first dim sum deal), took Intime representatives on a three-day roadshow that included several one-on-one meetings at the start of last week.

PCD Stores, another leading Chinese department store chain, has an outstanding offshore renminbi bond that was trading at around 4.7%, and investors apparently decided Intime was a better quality company that could justify a lower yield for its issue. Late on Friday, it was quoted at a premium, with the bid at 100.15.

The total book size was Rmb1.6 billion, made up of 55 orders. The issue was sold under Regulation S only, so onshore US investors couldn’t participate. Most of the issue was placed with Hong Kong-based investors, who bought 83% of the deal, while 15% was sold to Singapore accounts and 2% to other jurisdictions. By investor-type, 45% was allocated to fund managers, 38% to commercial banks, 7% to private banks and 10% to insurers and others.

The issue was given the same credit rating as the company: BB (stable) by Fitch and BB- (stable) by Standard & Poor’s. It is guaranteed by all of Intime’s non-PRC subsidiaries, and contains standard change-of-control and other financial covenants, including a negative pledge.

The proceeds are likely to be remitted into the Chinese mainland, and will be used for future expansion plans and repayment of existing debt. Intime saved 200bp on the central bank’s three-year onshore lending rate by tapping the dim sum market.

Thailand issues debut linkers
Meanwhile, Thailand launched its inaugural inflation-linked bonds at the end of last week. It was the first time such an issue by an Asian borrower had been syndicated — previous offerings by Japan and Korea were auctioned — and it was the first-ever inflation-linked bond in Southeast Asia.

The issue was “consistent with the [Ministry of Finance’s] objective to continue to develop the local bond market ... at a time when inflation is a focus for policymakers and market participants across the region”, said James Fielder, director and head of local currency syndicate for Asia at HSBC.

Thailand’s inflation rate jumped 4.06% year-on-year in June, because of higher food and energy prices, and there are fears that it will move higher if the new government’s proposed policies are implemented.

The coupon for the 10-year notes was set at 1.2%, within the initial published guidance at a time when yields on conventional Thai baht-denominated bonds had risen by up to 20bp to around 4% and, of course, shortly after Puea Thai’s victory in the country’s elections.

Investors will receive a minimum nominal coupon of 1.2%, with an additional amount every six months based on annual inflation rates, and a further top-up at redemption.

Thailand’s Public Debt Management Office planned to raise a total of Bt40 billion ($1.3 billion), but institutional subscriptions during the bookbuilding last week reached Bt65 billion, with Bt53 billion in orders reported at the final coupon rate of 1.2%.

The issue attracted orders from 66 accounts, and was placed in 10 countries. International investors were allocated 37.5% and 62.5% was distributed in Thailand. An offer of Bt9 billion of notes will be made to domestic retail investors early this week.

Subscriptions will be held at branches of HSBC, Krung Thai Bank, Kasikornbank and Siam Commercial Bank.

HSBC was the sole structuring adviser and bookrunner for the transaction, which was also the largest syndicated Thai baht deal so far.

¬ Haymarket Media Limited. All rights reserved.
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