China’s MI Energy and Thailand’s Siam Commercial Bank priced bonds last Friday amid difficult market conditions. Elsewhere, Chaoda Modern Agriculture pulled its benchmark-sized deal and Beijing Enterprise’s new issue widened 12bp as oil prices dropped and commodity markets got the jitters.
But debut high-yield borrower MI Energy pushed its deal through to raise $400 million, part of which will be used to fund its $170 million acquisition of Emir Oil, a company that owns oil-and-gas assets in Kazakhstan. That deal is due to close in June.
The five-year non-call-three bonds are rated B+ by Standard & Poor’s and B by Fitch, and were issued at a yield of 9.75%, which was in line with price guidance issued by the joint bookrunners, Bank of America Merrill Lynch and Deutsche Bank, earlier in the week. The bonds traded up a fraction on Monday, with Nomura quoting them at 100.1/100.3 at lunchtime.
MI Energy is an independent upstream oil company that operates three oilfields in the Songliao Basin, the heart of China’s oil country, each of which is subject to a separate production-sharing contract with PetroChina. It has owned a 90% interest in the oilfields since 2001 and is the sole operator, with Global Oil Corporation owning the remaining 10% as a passive foreign investor.
The company’s equity story is familiar to investors after a Hong Kong IPO in December last year, as well as an aborted attempt to list in New York earlier in 2010, but this is the first time the company has tapped the bond markets and investors had few precedents to consider for pricing as there are no directly comparable borrowers in Asia.
The deal is further complicated by MI Energy’s acquisition in Kazakhstan, which would worsen the company’s debt profile considerably if it fails. However, if successful, the deal could double the size of the company’s reserves.
Annisa Lee, a credit analyst at Nomura, wrote in a report published on Monday that the bonds look attractive compared to Zhaikm, an oilfield operator in Kazakhstan, whose due-2015 bonds pay 8%. The MI Energy bonds also offer a relatively high yield among China’s non-property sector, said Lee. “Investors can be compensated for MIE’s execution risk in Kazakhstan, while other Chinese industrials such as West China, Fufeng and Winsway still trade tight at about 8.5% or lower, despite having execution risk in expanding into other business segments and provinces in China.”
The deal attracted nearly $1.4 billion from more than 160 orders, with 48% placed in the US, 33% in Asia and 19% in Europe. By account type, funds, asset managers and hedge funds bought 74%, while insurers picked up 7%, banks 8% and private bank and others 11%.
Siam Commercial Bank also raised $400 million on Friday. Thailand’s fourth-largest bank printed the five-and-a-half-year deal with a coupon of 3.9% and priced at 99.769 to pay 205bp over US Treasuries. That looked like a good deal for the borrower, though it had to scale back the size of the offering to get there — it had originally hinted at a deal of $500 million.
The lead banks, Barclays Capital and Deutsche Bank, told investors on Wednesday that the deal would price around the 205bp area, though they had expected that it would tighten from there. Markets did not cooperate in the end, but the deal still priced inside its theoretical new-issue level and about 10bp wider than Bangkok Bank’s 2015s, according to Nomura, which said that was a fair value given Siam Commercial Bank’s weaker liquidity and capital position.
The bank is rated A3 by Moody’s, BBB+ by Standard & Poor’s and BBB+ by Fitch.
Investors reportedly covered the final order book twice, with Asian investors taking 89% of the deal. Europeans bought 8% and US investors 3%. By account type, fund managers bought 36%, banks 33%, central banks and official institutions 17%, insurers 7% and private banks and others 7%.