A trio of large-cap borrowers jumped into the international bond markets on Wednesday, marking a week of relatively heavy new issuance and increasingly muted secondary market trading.
Timing for the two Hong Kong blue chips – CK Hutchison Holdings and New World Development, plus China’s acquisitive HNA Group – was dictated by China’s imminent five-day Golden Week holiday.
The offerings hit a market where investment grade spreads ended the day pretty much unchanged, with buying activity concentrated in high yield paper according to sales desks.
"There’s a continuing search for yield even though we investors acknowledge that stretched valuations and historically low yields leave the markets vulnerable to any future shocks," one Hong Kong-based fund manager told FinanceAsia. "Investment grade credit remains in high demand, so a lot of institutional investors have to go down the credit curve in search for higher returns."
A syndicate banker added, "Today's secondary market was not particularly positive or negative with little spread movement across the regional."
CK Hutchison
Hong Kong tycoon Li Ka-shing's flagship, CK Hutchison, raised $1.25 billion from the sale of a dual-tranche issue that priced during New York hours on Wednesday.
The split five- and 10-year Reg S/144a deal marked the group’s first dollar-denominated offering since it spun out its property assets to a new listed unit.
Unlike most previous deals, the new transaction built up a fairly modest order book, which stood at $3.5 billion shortly before US books closed.
However, this did not stop Hutch from upsizing the five-year tranche from an expected issue size of $500 million to $750 million.
The group had initially pitched the five-year tranche at 115bp over Treasuries before tightening this to 5bp either side of 95bp.
Final pricing came at 90bp over Treasuries.
The $750 million October 2021 note was priced at 99.342% on a coupon of 1.875% to yield 2.014%, while the $500 million October 2026 note was fixed at 99.092% on a coupon of 2.75% to yield 2.855%, according to a term sheet seen by FinanceAsia.
A $500 million 10-year tranche was initially marketed at 145bp before pricing was tightened to 5bp either side of 135bp over.
This tranche was priced at 130bp over Treasuries.
The obvious comparables are the group's outstanding 4.625% January 2021 bond and 3.625% October 2024 bond.
The former was trading on an extremely high cash price of 112.52% bid, or a mid G-spread of 91bp during Asian hours on Wednesday according to a syndicate sales note.
The October 2024 bond was trading on mid G-spread of 115.5bp.
On this basis, the new October 2021 bond has come 1bp through the outstanding January 2022 bond.
The 10-year offered a 15bp spread premium for a two-year maturity extension.
The group’s existing January 2022 to October 2024 curve is worth 24.5bp or roughly 8bp per year rounded out to three years. This also suggests the group has priced flat to marginally through its existing curve on this tranche as well: an ambitious move in sedentary markets.
In a pre-deal research note Mizuho, pitched fair value for the new five-year at 95bp over Treasuries based on an existing 2022 G-spread of 95bp.
Where the 10-year was concerned it placed fair value at 130bp over Treasuries based on a 2024 G-spread of 118bp.
It concluded that the shorter-tranche was likely to be more attractive given current market dynamics.
Joint global co-ordinators for the new trade were Bank of America Merill Lynch, Citi, Goldman Sachs, HSBC and Morgan Stanley.
New World Development
The real star of the day was the Hong Kong-listed property developer, which also upsized its prospective deal and printed a $1.2 billion perpetual non-call five bond on Wednesday night.
The unrated group, controlled by local tycoon Henry Cheng, built an impressive order book of close to $8 billion at its peak, prompting the issuer to execute a larger deal than its original plan of raising $750 million to $1 billion.
"Strong investor demand has helped the issuer achieve the largest size for a fix-for-life (non-step-up) perpetual security by any Asian corporate," noted a person familiar with the deal.
It is also New World’s first $1 billion-plus deal.
The group initially went out with guidance around the 6% area, before tightening this to 5.75%. Final pricing of the Reg S deal was fixed at par to yield 5.75%, according to a term sheet seen by FinanceAsia.
"It has no economical maturity," one banker explained, before adding that the deal attracted a predictably high private banking component, with institutional investors coming in second.
One syndicate banker calculated fair value at closer to 6.25%.
This was based on the 5% yield of an outstanding 30-year senior note and a 125bp spread differential between New World's perpetual and senior yield curve.
“Final pricing is a reflection of strong demand in current market conditions, where investors are starved for yield," the person concluded.
The new print - under the name of NWD Finance BVI Ltd – marks the second instance of an issuer adopting a fix-for-life structure. This means the coupon rate will not change.
Li Ka-shing's Cheung Kong Infrastructure was the first issuer to use this format, also raising $1.2 billion in February this year. This attracted a far smaller $2.6 billion order book.
New World has entered the bond markets shortly after the privatization of New World China Land. Bankers said the new deal should help reduce the group’s overall leverage in a non-dilutive way and increase its financial flexibility since it is under no pressure to refinance or redeem the paper.
Joint bookrunners were JP Morgan and HSBC, while Mizuho was a joint lead manager.
HNA Group
By contrast to New World, HNA group struggled to cover the order book for a prospective $200 million five-year deal.
This was no doubt in large measure because the unrated group re-entered the bond markets less than two months after issuing a $300 million three-year deal.
The last deal captured a final order book of $800 million and this time round it came in much lower at $350 million according to bankers.
The leads went out with an initial guidance at 6.25% and were unable to tighten that level during the course of the day.
This reflects investors’ concerns about HNA’s aggressive acquisition strategy. The group and its affiliates have announced takeovers and investments worth at least $19 billion since 2009.
However, one syndicate banker pegged fair value around the 6% level, or 25bp tighter.
This was based on the trading level of HNA's 6% August 2019 bond, which was at 101.25% on a yield-to-worst of 5.522% on Wednesday.
Joint bookrunners for the new deal were: AMTD, Bank of China, Bocom Hong Kong branch, CEB International, Guotai Junan International, Hong Kong International Securities, OCBC and VTB Capital.
