The company conducted 18 one-on-one meetings during the Hong Kong and Singapore roadshow, with 56 investors attending the Hong Kong lunch, excluding bankers and those affiliated to Li & Fung. The management succeeded in galvanising considerable interest in the deal which meant the roadshow never got to London, having already raised an impressive order book. The transaction was accelerated in order to price last night.
The issue, rated A/A3 stable/stable, closed with a coupon of 5.5%. In terms of comparables, Swire PacificÆs March 2016 (5.625%) and Sun Hung KaiÆs March 2017 (5.375%) issues have been quoted as the most relevant. They were both trading at 35bp over mid-swaps last week, and are trading now at 33bp and 34bp over mid-swaps respectively.
A total of 84 investors participated in the transaction, which was led by Citi and HSBC. In terms of distribution, around 44% of the bonds was sold to banks, 43% to fund managers, 11% to insurance companies, and 2% to other buyers. In terms of geographic distribution, 36% sold to Hong Kong and 30% to Singapore.
Investors who bought the paper believed the issue to be of good value. According to sources, Li & Fung's 22% compound annual growth rate (from 1992 to 2006), and its solid management team were the two factors that attracted investors.
Guidance was set yesterday at 40bp-43bp over mid-swaps. The long term benefits of positive secondary market performance encouraged Li & Fung not to tighten the spread guidance and to price slightly wide of its potential, opting instead to strengthen its relationships with fixed-income investors. Although placed to buy and hold investors, there is likely to be a decent secondary market nonetheless, with one investor reckoning that it will be in the banks' interest to trade these bonds, if they wish to secure further investment-grade Hong Kong mandates. In a strategy that differs from other bond issuers that priced at the tightest end of revised guidance, Li & Fung hopes that by leaving a couple of basis points on the table û so as to ensure optimum primary distribution - it will allow these bonds to potentially trade tighter versus peers in the long-term.
Li & Fung is reputed as a highly efficient company with a strong business model and excellent management. It was used as a case study at the Harvard Business School.