Noble Group prices $850 million 10-year bond

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.