The Reg S transaction priced at 99.547% on a coupon of 5.625% to yield 5.685%. This equivalent to 100bp over comparable US treasuries or around 47bp over Libor. The notes were issued under the conglomerate's $1.5 billion Medium Term Note Programme.
The order book closed with 66 accounts for a total book size of $600 million, an oversubscription ratio of about 1.7 times. In terms of geographical distribution, Asian accounts bought 65%, while European accounts bought the other 35%. By account type, banks bought the majority of the overall book with 49%, fund managers 35%, insurance and pension funds 6%, private banks 5%, and others the remaining 5%.
The key comparables heading into the deal were other Hong Kong-based conglomerates, Hutchison Whampoa and Hong Kong Land û both have outstanding 2014 deals. Hutchison carries a similar rating to Swire at A3/A-, and its $2 billion 6.25% bond was quoted at 117bp over US treasuries or 65bp over Libor. Lower-rated Hongkong Land (A2/BBB+) has a $500 million 5.5% deal that was trading at 103bp over US treasuries or 53bp over Libor.
This means that despite the additional two yearÆs in maturity, Swire has priced inside of its fellow Hong Kong institutions' curve.
However, during roadshows investors were looking at the recent deal from A3/A- rated Penerbangan Malaysia (PMB), owner of Malaysian Airlines, as the most likely comparable, particularly because it had also priced during a choppy market.
PMBÆs $1 billion 10 year bond deal, which priced on March 9, came at 99.864% on a coupon of 5.63%, offering a yield of 5.643%. That is equivalent to 35bp over mid swaps or 89.25bp over Treasuries. Currently that deal is trading at 98bp over US treasuries or 45bp over Libor.
Expectations of an interest rate hike in the US has been putting stocks and bond yields under pressure in recent weeks and subsequently treasuries and emerging market debt have been pushed out as the liquidity that was awash in the markets a few weeks ago continues to dry up. Robust producer inflation data, coupled with Fed head Ben Bernanke's upbeat outlook on the US economy kicked-off an initial sell-off as investors began to have renewed worries about how far rates would rise.
With the market volatility playing in the background, Swire had to be fairly responsive to investor feedback and flexible in terms of its own price sensitivity.
After wrapping up roadshows in Asia, the leads had opened up European roadshows with a stalking whisper tha pricing would come around the low 90bp range over US Treasuries or low 40Æs over Libor, a range that had picked up some momentum from Asian accounts. However upon meeting with investors in Europe, who were leaning more toward the high 90s to 100bp level, the borrower opted to leave something on the table in order to ensure investor quality and give the deal strong support in the rocky secondary market. That attitude seems to have paid off as the deal has traded up to 98.7% in early morning trading.
The deal is the final arm of a dual currency capital raising venture, following the completion of a HK$1.8 billion ($232 million) seven-year fixed-rate issue early last week. HSBC was the sole lead on that deal.
In its most recent ratings report, MoodyÆs noted that SwireÆs credit strengths are three-fold. First, its good quality property investment portfolio underpins its substantial recurring cashflow. Secondly, SwireÆs well established and sector-diversified business portfolio supports a stable cashflow. Lastly, its prudent business strategy and financial management practices.
However, Swire is vulnerable to the cyclical nature of Hong KongÆs property market and the volatility in the aviation sector. Additionally, as SwireÆs growing portfolio of investments in China exposes its cashflow to increasing volatility.
Swire Pacific is a Hong Kong-based conglomerate with holdings in property and development, aviation, beverages, marine services, trading and industrial businesses. Swire is owner of Cathay Pacific and the Hong Kong Aircraft Engineering Company (HAECO) and holds the franchise to manufacture and distribute Coca-Cola products in Hong Kong and Taiwan, as well as 10 states in the USA and seven provinces in Mainland China, representing a total franchise population of over 400 million.
Swire will use the proceeds for general capex purposes.
