China’s state-owned chemical company Sinochem early Friday morning closed a $600 million perpetual, taking advantage of low rates to lock in funding for bonds that have no maturity. The deal offered the lowest coupon for a US dollar corporate hybrid from an Asian borrower.
It was also one of the few perpetuals from a major Chinese state-owned enterprise. The Beijing-headquartered Sinochem is wholly owned by the Chinese government. It had previously planned to raise $5.5 billion through a Shanghai IPO back in 2011, but shelved those plans. As it is unlisted, it does not have the option of issuing equity.
The issuer was Sinochem Global Capital and the guarantor is Sinochem Hong Kong, which is rated Baa1/BBB/BBB+. There is a letter of support from Sinochem Group. The perpetuals are rated Baa3 by Moody’s and BBB- by Fitch.
Sinochem Hong Kong, the guarantor, holds the group’s important assets, including its exploration and production assets, and stakes in Sinofert and Franshion Properties, which should give investors comfort.
Asian perpetuals have mostly been driven by Asian demand, but Sinochem was one of the few to have been sold to onshore US accounts. According to a source, a few big new investors from the US came into the book, and, as Sinochem has issued in the onshore US market before, the incremental cost was not much. However, in the end, it was not a big game changer as far as allocations went. US investors were only allocated 10%, with the bulk (77%) going to Asian investors and the remaining 13% landing in European hands.
The deal attracted an order book of $3.7 billion. Unlike most recent perpetuals, which have been driven by private banking demand, Sinochem saw good take up from institutional investors. Fund managers were allocated 42%. Private banks were allocated 29%, banks 15%, insurers 8% and public and sovereign wealth funds 6%.
The initial price talk was 5.375%. The bonds, which are callable at five-and-a-half years, were marketed at 5.125% to 5.25% and eventually priced to yield 5% — which works out to be a spread of 429.7bp over the five-year US Treasury.
There is a 25bp step-up after 10.5 years and another 75bp step up after 25.5 years. In addition, there is also a 500bp step up if Sinochem Corporation owns less than 100% of the guarantor (Sinochem HK) or if the Chinese government indirectly or directly owns less than 50.1% of Sinochem HK. However, either of these changes would also have to trigger a ratings downgrade for the step-up to apply. However, a ratings downgrade is expected if these changes take place, as rating agencies assumed strong government support in their rating, according to a source.
The perpetuals traded at the par reoffer in secondary markets on Friday, Citi and UBS were joint global coordinators and bookrunners. Goldman Sachs, Morgan Stanley and HSBC were also joint bookrunners.