investment-grade bonds

Investment-grade bond market flush with liquidity

Sino Land, Kaisa and PTT Global Chemical collectively raise $1.75 billion on Wednesday, while Kasikornbank, Trade and Development Bank of Mongolia, Maybank and Olam also tap investors on Thursday.

Make hay while the sun shines — that certainly seems to be the rule of thumb among borrowers these days, judging by the slew of issuance in the market.

On Thursday, four issuers — Trade and Development Bank of Mongolia, Kasikornbank, Maybank and Olam — tapped investors with dollar bonds. And the previous day, Sino Land, PTT Global Chemical and Kaisa collectively raised $1.75 billion.

“There are a number of reasons why Asia’s bonds markets are so active at the moment,” said Bryan Collins, portfolio manager at Fidelity. “The summer is over and companies have just posted their first-half results and are tapping the Reg-S/144a market while their accounts are still fresh. Also, markets are up and running, and issuers are taking liquidity when they can get it.”

Such strong deal flow has not been seen across the board, however. Although the investment-grade market has been busy, high-yield primary issuance has been patchy. According to Dealogic, year-to-date, the total amount of high-yield dollar bonds from Asia ex-Japan is $8.6 billion, compared to $13.2 billion during the same period last year. In comparison, the volume of dollar investment-grade bonds is $60 billion, nearly double the $31 billion during the same period last year.

However, there are signs of the high-yield primary market picking up, judging by investors’ enthusiastic response to Road King and Kaisa’s high-yield bonds. The former attracted $2.2 billion of orders for its $350 million bond, while the latter attracted orders worth $3.9 billion for its $250 million bond.

“There has been a very strong bid for high-yield in the secondary market in recent months,” said Collins. “It seems odd that we have not seen more high-yield primary bond issuance because, if companies want to borrow, now’s the time. There is a big pipeline and the market appears receptive to most sectors.”

Sino Land
Hong Kong property developer Sino Land printed a debut $500 million five-year bond on Wednesday night. The deal was unusual as it was announced at 5pm Hong Kong time, after a crucial German court decision to ratify the European rescue fund was out of the way. Books were kept open for only an hour and within that short span of time, Sino Land attracted $3.5 billion worth of orders from 140 accounts.

“If they had waited for today to launch a deal, they would have been the fifth issuer to tap the market, so it was good to get it done and dusted yesterday,” said a source. “There was a lot of event risk yesterday, particularly for a debut issuer. We were waiting for the German court to make a decision.”

The initial guidance was Treasuries plus 280bp and the bonds priced at Treasuries plus 265bp, at the tight end of the final guidance. Sino Land paid a coupon of 3.25% — the lowest for an unrated borrower. Comparables included the outstanding Henderson Land bonds, which were trading at Treasuries plus 260bp, and the Nan Fung bonds, which were at Treasuries plus 295bp.

Asian investors were allocated 92% and European investors 8%. Fund managers were allocated 64%, banks 18% and private banks 18%. HSBC was the sole bookrunner. DBS was a joint lead.

PTT Global Chemical
Early Thursday morning, PTT Global Chemical priced a $1 billion 10-year bond — its first since it was formed on October 2011 from the amalgamation of PTT Aromatics and PTT Chemical.

The leads — Barclays, Goldman Sachs, RBS and Standard Chartered — went out with initial guidance at Treasuries plus 300bp and finally priced at Treasuries plus 260bp, at the tight end of the Treasuries plus 260bp to 270bp final guidance.

The deal got a strong reception from Asian investors, with the order book at $3.2 billion just before the London open. By the time final price guidance was released, the order book stood at around $9.5 billion. The final order book stood at $11 billion from 370 accounts.

However, the fact that the bonds priced 40bp inside of initial guidance, and then went on to tighten another 15bp in secondary, drew criticism from some rivals, who suggested that the leads had not gotten enough feedback from investors before going out with the initial guidance. “They started out way wide,” said one rival.

Sources familiar with the deal pointed out that the main comparable — the PTT Exploration & Production 2021s — had rallied by 17bp during the course of the bookbuilding, as markets were in “risk on” mode on Wednesday. The PTTEP 2021s moved from Treasuries plus 230bp to 213bp.

“While it looks like it was a big tightening, in the context of the main comparable PTTEP tightening 17bp, it’s not so extraordinary,” said one source, while another added: “We’ve seen other Korean issuers such as the Korea Hydro & Nuclear Power tighten by 20bp from initial guidance to final pricing and then tighten more in secondary.”

Asian investors were allocated 54%, European investors 27% and US investors 19%. Fund managers took 64%, central banks and insurers 14%, private banks and companies 12% and banks 10%. PTT Global Chemical is Thailand’s biggest integrated petrochemical and petroleum refining company. It is 48.9% owned by PTT, which is in turn 51.1% owned by the Thai government.

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