Southern Power Grid, Socam join debt binge

But there are subtle indications that that Asia's G3 primary bond market may be suffering from a little indigestion.

A pair of Chinese rookies extended Asia's dollar-bond rush on Thursday, with state-owned China Southern Power Grid raising $1.5 billion from a dual-tranche offering and Shui On Group's property construction arm selling a $200 million three-year note.

Both deals were oversubscribed, with China Southern Power garnering more than $2.5 billion of orders and Socam Development receiving $550 million-worth of interest for its unrated deal.

Even so, there are hints that the region's red-hot primary bond market could be losing a little momentum after secondary market trading disappointed.

“Following [the] poor secondary performance of State Grid bonds, Southern Power bonds were mixed, with the five-year bond edging up by 2 basis points and the 10-year note trading down by 1bp on Friday,” one fixed-income trader in Hong Kong told FinanceAsia.

“A slight widening in some of the new bonds may be a signal of some indigestion in the market following a heavy issuance this year,” the trader added. “Investors are reluctant to take positions ahead of the long weekend.”

Companies in the Asia ex-Japan region have raised a record $140 billion from the G3 bond market so far this year, almost double the $72.8 billion raised in the same period last year, data compiled by Dealogic shows. 

SOE binge

China Southern Power Grid tapped the market after similar bond sales by other state-owned groups. State Grid raised $5 billion from a four-part sale on Wednesday during New York hours and State Development & Investment Corporation completed a $1 billion debut sale a day earlier.

Southern Power Grid, a power grid operator to 230 million people in southern China, initially marketed its five-year offering at 125bp above comparable US Treasury yields, before tightening to US Treasuries plus "105bp area". Final pricing for the $600 May 2022 bond was 100bp above five-year US Treasuries, according to a term sheet seen by FinanceAsia.

For the 10-year note, the Aa3/AA-/A+ rated issuer pitched the deal at US Treasuries plus 155bp, before narrowing it to 135bp over. Final pricing of the $900 million May 2027 bond was 130bp over the Treasury curve.

State Grid’s recently issued bonds, offering the same state-owned background and sector exposure, showed there was little difference in the way Southern Power Grid's bonds were valued. On Thursday, State Grid’s 2022 bond traded at 100bp over five-year US Treasuries, while the 2027 bond yielded 128bp over the 10-year curve, according to a syndicate banker running the deal.

“Southern Power Grid was priced in line with State Grid, leaving no new-issue concession to investors,” the syndicate banker said.

The proceeds raised from Southern Power Grid's bond sale will be used for refinancing and general corporate purposes.

Joint global coordinators of the bond sale were JP Morgan, Bank of China and UBS, while CICC HK Securities, ANZ and HSBC were joint bookrunners.

Refinancing push

Hong Kong-listed Socam Development, controlled by local tycoon Vincent Lo, raised $200 million from a three-year note, paying investors a decent premium over its parent company Shui On Land.

Without getting a credit rating, Socam Development sold the deal at a yield of 6.25%, compared with its initial price guidance of "6.5% area" during the Asian morning on Thursday.

In its 2016 earnings statement, the group posted a 10% decline in revenues, a bigger loss attributable to shareholders, and a rise in its net gearing. It blamed lower valuations at some of its property projects in Chinese tier-2 and tier-3 cities, as well as a weaker renminbi currency.

As a result, Socam Development paid a relatively higher price to get its new bonds away, a second syndicate banker said.

Based on Shui On Land’s outstanding 2019 bond, which traded at a yield of 4.4%, the new Socam Development bond offered a 150bp yield pickup over the parent.

Shui On Group, parent to both Shui On Land and Socam Development, provided a letter of credit to the subsidiary. There is also a put option in case controlling shareholder Vincent Lo and other major shareholders collectively own less than 35% of Socam Development.

The group plans to use the new proceeds to refinance some of its bank loans.

UBS was the sole global coordinator, while DBS joined as a joint bookrunner.

¬ Haymarket Media Limited. All rights reserved.