Noble Group raised $850 million through a 10-year bond issue early Friday morning Hong Kong time, pricing the deal at a fixed yield and at the tight end of early guidance.
Although the yield on the issue wasn't fixed relative to the yield of the 10-year US Treasury bond, at the time of pricing it translated into a spread of 344.5 basis points over that benchmark. The senior notes pay a 6.75% coupon each year, and were reoffered to investors at 99.105 to yield 6.875% to a maturity date of January 29, 2020.
The bonds were offered inside the existing Noble yield spread curve, but investors seemed happy with the terms of the new issue, which was marketed with initial price guidance at the low-7% level. One banker familiar with the deal, suggested, perhaps fancifully, that higher-rated Korean corporate bonds acted as a suitable yardstick, but more likely, investors are simply eager for good quality Asian names and a chance for diversification -- and are prepared to suffer a somewhat arbitrary pricing mechanism, as long as it's not silly.
The total size of the order book amounted to $4.8 billion from 285 accounts, and a substantial proportion of them participated at the final yield level, according to sources close to the transaction. The bookrunners -- Goldman Sachs, HSBC, J. P. Morgan and Royal Bank of Scotland -- arranged two teams to make investor presentations last week in Singapore, Hong Kong, New York, Boston and Los Angeles. One-on-one calls were also made to favoured European accounts.
The deal found strong support among US accounts, which bought 57% of the total, while Asian and European investors were allocated 30% and 13% respectively. In terms of types of investors, asset and fund managers made up the bulk of the interest, taking 65% of the bonds. Insurance companies and pension funds bought 14%, private banks and retail were sold 13%, banks took 4% and the same amount went to others.
In the late Hong Kong afternoon on Friday, the bonds were offered at par.
More deals are expected this week and throughout the fourth quarter. Korea's Hyundai Capital has mandated a host of banks to lead a benchmark rule 144a deal which is now on the road, and following State Bank of India's successful issue last week, another Indian lender, Axis, is planning a Reg-S transaction. Meanwhile, Indonesian borrowers are lining up, with state-owned electricity company PLN intending to launch its second dollar deal this year, and coal miners Indika Energy and Buma also getting ready to come to market.
Still, worries about over-supply are probably overdone. Edwin Chan, head of Asian credit research at UBS, points out that historically, Asian borrowers have raised between $10 billion and $20 billion each year, but net issuance in Asia has been falling since 2004, and in 2008, taking into account redemptions and coupon payments, there was negative issuance of $14 billion.
"This year, we calculate that there will be gross payments of $32 billion to investors, so aggregating 2008 and 2009 (and excluding market buy-backs by issuers), $46 billion of new supply would be needed just to replenish that short-fall," said Chan.
So far this year, there has been around $45 billion worth of issuance, according to data provider Dealogic, "so the market has yet to reach a tipping point towards over-supply, particularly within the context of a resurgence of US and European demand for Asian names, supported by the region's rapidly improving economies", he added.
For the first time, Noble's bonds had been rated BBB- (or the equivalent Baa3) by all three major ratings agencies -- Standard and Poor's, Moody's and Fitch Ratings -- meaning it has successfully migrated from a non-investment grade issuer (albeit one with mixed ratings) to the lowest investment grade level.
"Noble's Baa3 rating reflects the company's financial prudence during the extreme market volatility of the last 12 months, in tandem with very rapid growth in the last few years," said Elizabeth Allen, a Moody's vice-president and senior credit officer in a report on October 19. "Its product and geographic diversity mitigates the inherently volatile nature of the commodity markets and contributes to the stability of its profit margins," she added.
Noble is a global trader and supply chain manager, engaged in the sourcing, storage, transportation and distribution of agricultural, energy and industrial products. Last year it reported revenues of more than $36 billion. It is headquartered in Hong Kong, but listed on the Singapore Exchange, and has over 100 offices in more than 40 countries.
On October 16, Noble said that it would use part of the proceeds from this bond issue to repay existing debt, including up to $340 million of its outstanding $680 million 6.625% senior notes due in 2015 through a tender offer which will be arranged by J. P. Morgan. An "early bird" price has been fixed at 104. One objective is to lengthen the company's debt maturity profile.
The new bonds were sold under the SEC Rule 144A to US investors and under Reg-S to international accounts, and will be listed on the Singapore exchange. They are unsecured, ranking behind Noble's secured debt, but ahead of its subordinated borrowings; existing and future debt of the company's subsidiaries will rank above the new notes.
The bonds are callable at par at any time by the issuer, who will also offer to repurchase the notes at a price of 101 plus accrued interest if there is a change of control event.