Swire Pacific has raised $500 million in 10-year bonds, pricing the deal on Wednesday night Hong Kong-time. It was a low-key but successful placement, which followed the release of Swire's results last week, and discussions with investors on Monday and Tuesday.
The offering was part of the Hong Kong-listed conglomerate's $3 billion medium-term note programme, and is rated A- by Standard & Poor's and the equivalent A3 by Moody's. The issuing vehicle was Swire Pacific MTN Financing and the notes are guaranteed by Swire Pacific.
The issue pays a 5.5% semi-annual coupon (the lowest ever for Swire), and was re-offered at 99.529 to yield 5.562% to a maturity date of August 19, 2019. Initial price guidance was 190 to 200bp over the benchmark 10-year US Treasury yield, and when strong demand quickly became apparent, the lead managers were confidently able to sell the bonds at the tight end of that range (190bp).
Swire's existing 2018-dated bond, launched in April last year at a 260bp spread, was the obvious reference point, and on Wednesday it was trading between 180bp and 185bp over the Treasury yield curve. The curve is steep, and between the interpolated yield for measuring the Swire 2018 bond and the yield of the 10-year benchmark, there is a pick-up of about 17bp.
Pricing wasn't helped by a weak credit market and the underperformance of last week's jumbo Petronas 10-year issue. The $3 billion tranche was launched at 162.5bp over Treasuries, but had widened to 180bp on Wednesday amid rumours that too many bonds were allocated to trading accounts, which are notoriously loose and short-term holders. The iTraxx Asia index of investment-grade credit default swaps was also weaker, widening by 15bp on the day.
But the Swire deal seemed to have helped steady sentiment. Petronas tightened to 173bp yesterday and Hutchison Whampoa's 10-year global bond, issued in April at 475bp, strengthened to 207bp compared with 220bp on Wednesday.
The new Swire notes closed in Hong Kong yesterday at 176bp on the bid-spread, indicating a strong after-market as under-allocated investors looked to add to their holdings. In a stronger market generally, Swire outperformed by about 7bp.
Bookrunners HSBC and J.P. Morgan received orders worth more than $3 billion from more than 160 accounts. It was a Regulation-S deal only, so onshore US investors were excluded from the primary offering, and most of the bonds were placed in Asia. In total the region was allocated 82% and the remaining 18% was distributed within Europe, the Middle East and to a few offshore US accounts.
The order book was made up mainly of "real money" accounts, rather than short-term traders. Asset managers took 32%, insurance companies and commercial banks bought 21% each, and 24% was placed with private banks, which largely act as a conduit for considerable retail interest, which is normally attracted to the Swire name. The remaining 2% was sold to "others".
Swire Pacific is a general trading house engaged in aviation, beverages, insurance, property, shipping and several other activities. It is controlled by a UK-based private company, John Swire & Sons, which held 38.5% of its issued capital and 56.65% of its voting rights as of June 2009.
In a note released on Thursday, Moody's said that Swire's A3 rating "is underpinned by steady rental income generated from a high-quality investment property portfolio in Hong Kong [which] continued to generate strong cash flow in the first half of 2009".
Beverages and marine services have also performed well, but the ratings agency noted that Swire's aviation sector, mainly through its associated company, Cathay Pacific, "continues to show weak performance amidst an extremely difficult environment globally". It also warned that the company's financial ratios could come under pressure as a result of planned high capital expenditure during the next couple of years.
The proceeds from the bond issue will be used mostly for refinancing existing short-term debt and general corporate purposes.