Despite volatile markets as the situation in Greece continues to rattle investors, two debt deals — Sinopec’s massive $3 billion triple-tranche bond and Vietinbank’s smaller $250 million bond — crossed the line early Friday morning.
Clearly Asia’s debt markets are open despite choppy conditions, though the question some may be asking is for how long? “It’s definitely busy. Some deals may be taking more time to come together but at least the markets are open,” said one banker.
The fact that Sinopec was able to issue a $3 billion debut bond — making it the largest dollar bond to be issued by a Chinese company — and attract $19 billion worth of orders amid weak markets was an impressive outcome for the state-owned enterprise. Sinopec was no doubt helped by the fact that it is a strong investment grade credit out of China, rated Aa3 by Moody’s and A+ by Standard & Poor’s. The bonds were also guaranteed by the Chinese parent company.
Sinopec came out with guidance for its triple tranche deal on Thursday morning — marketing the five-year bonds at Treasuries plus 225bp, the 10-year bonds at Treasuries plus 230bp and the 30-year bonds at Treasuries plus 205bp. This was revised to Treasuries plus 205bp to 215bp for the five-year, Treasuries plus 210 to 220bp for the 10-year and Treasuries plus 185bp to 190bp for the 30-year, with the bonds pricing at the tight end of guidance.
Notably, Sinopec’s 30-year bond priced 25bp inside the 10-year bonds on a spread over Treasuries basis, a rare outcome that suggests there is a strong bid for long bonds. The demand was split $6 billion, $5 billion and $8 billion between the five-year, 10-year and 30-year tranches respectively — with strongest demand for the long bond. A total of 354 global investors participated in the deal.
In contrast, when oil and gas company Cnooc tapped the market last month, the 10- and 30-year bonds both priced at the same spread — at 190bp over Treasuries. “What stood out about Sinopec’s deal was the inverted yield curve — it’s quite rare,” said a banker. All three tranches traded firmer in secondary markets. In secondary, the Sinopec 2017s were at Treasuries plus 200bp/198bp, the 2022s at Treasuries plus 207bp/205bp and the 2042s at Treasuries plus 184bp/181bp.
Asian investors were allocated 38% of the five-year tranche, European investors 25% and US investors 37%. For the 10-year tranche, US investors were allocated the most (46%), Asian investors 32% and European investors 22%. For the 30-year tranche, Asian investors were allocated 51%, US investors 34% and European investors 15%.
Citi, HSBC, BOC International were global coordinators and bookrunners. Barclays, Goldman Sachs, J.P. Morgan, Mizuho and UBS were also joint bookrunners.
Meanwhile, Vietinbank also closed its $250 million debut five-year bond — the first international bond for a Vietnamese bank. The bank had conducted roadshows in March, but held off pricing a deal at that point. It came back last week with an indicative size of $200 million to $300 million and priced at the mid-point.
The initial guidance was at the area of 8.25% and pricing did not move much from there — with the bonds offering a yield of 8.25%. It attracted a $700 million book from more than 110 accounts. There was a $0.50 private banking rebate. The coupon was fixed at 8% and the notes reoffered at 98.992.
Rivals suggested that the 8.25% pricing looked cheap but bankers pointed out that the bonds were wrapped around reoffer in secondary on Friday — quoted at 99.04/99.30 — suggesting that the pricing was fair.
The leads had looked at Bank of Ceylon, which was yielding about 7.1%, and Sri Lanka as comparables. The bonds offered a generous spread of about 300bp over the Sri Lankan sovereign bonds, but those bonds were said to be trading tight, as most large funds are focused on buying sovereign bonds.
Asian investors were allocated 40%, European 37% and US investors 23%. Fund managers were allocated 48%, private banks 28%, banks 14%, public institutions 8% and corporate 2%. Barclays and HSBC were joint bookrunners for Vietinbank.
Also pricing last week was Yanzhou Coal, which closed a $1 billion dual-tranche bond through Deutsche Bank and UBS. Meanwhile, China Zhengtong Auto and Baoxin Auto, which had both gone out with initial price thoughts and were expected to price deals last week, went quiet.
Other Chinese high-yield names such as China Tianrui Cement and Sunac China, which had completed roadshows, have not priced deals — an indication that the Chinese high-yield sector remains challenging and investors are still cautious. “Investment grade names are getting done but the high-yield names are having a harder time,” said a banker.