Sinopec, the world’s largest energy company by revenue, made a smooth return to the international bond market on Wednesday, selling a $3.4 billion four-tranche deal.
The 144A/Reg deal was launched on Wednesday morning, and bankers covered the entire book in the first few hours, according to two syndicate bankers running the deal. The peak order book reached $5.75 billion before the release of final price guidance, making it one of the most heavily-subscribed deals of the year.
The Aa3/A+ rated company took advantage of a constructive market environment, with corporate bond yields in the region hovering near a record low. The Asia ex-Japan iTraxx investment grade index rebounded slightly to 95bp from its historical low of 86bp in mid-March — a far cry from the one-year high of 151bp in June last year.
Some bankers pointed to a slight dampening of sentiment on the news that the Federal Reserve was planning to sell some of the stockpile of bonds it accumulated under quantitative easing. But there is little doubt Sinopec has come to the market after a breakneck start to the year.
According to Dealogic, Asian borrowers have raised $87.6 billion from 157 deals in the first quarter this year, the biggest quarterly volume ever in the region G3 primary markets.
“Flows into Asia continue to compress the overall yield in the region,” a Hong Kong-based investor told FinanceAsia. “Investors are more resilient to external shocks from the fiscal and monetary policies in the US to the elections in Europe. A bull market in bonds isn’t over.”
Smooth sailing
Bankers initially pitched three tranches to investors — a three-year, five-year and 10-year note at around 120bp, 130bp and 150bp, respectively, over the US Treasury yields. At the time of final price guidance, they added a 30-year maturity at “4.25% the number”, as well as slashing the marketing range to 2bp each side of 100bp for the April 2020 note, 2bp each side of 115bp for the 2022 note, and 2bp each side of 135bp for the 2027 note.
All the bonds priced at the tight end.
The company priced the $1 billion three-year bond at 98bp over Treasuries, compared with its outstanding September 2019 note, which was quoted at around 91bp over Treasuries.
Sinopec raised $1.1 billion from its five-year note at 113bp over Treasuries, or a coupon of 1.875%. Another $1 billion was issued from the 2027 note, which was priced to yield 133bp over 10-year Treasuries, or 2.25%.
On Wednesday morning, its outstanding 2021 note and 2026 note were trading at 99bp and 123bp above US Treasuries, respectively. That implied the company paid a new-issue concession for the latter tranche only.
The final, longer-dated tranche was worth $300 million and paid a fixed rate of 4.25%, or 121.8bp over the 30-year curve. Its outstanding 4.25% $400 million May 2046 note was yielding 127bp over the US Treasuries, suggesting the new 30-year was priced inside the existing curve.
The company plans to use the proceeds to refinance existing debt and for general corporate purposes.
Sinopec reported a 43.6% rise in net profit to Rmb46.7 billion in 2016, beating the average estimate of Rmb41.4 billion polled by 21 analysts.
The global coordinators of the new deal were Citi, UBS, BOC, Goldman Sachs, HSBC, ICBC International, while Agricultural Bank of China, BofAML, CCB International, DBS, JP Morgan, Mizuho Securities, Morgan Stanley, SocGen and Standard Chartered were joint bookrunners.
