Asian debt capital markets finally hit their stride on Tuesday with three issuers raising a combined total of $2.1 billion.
After a quiet first week to the year, two Chinese issuers and one Korean borrower all executed deals that achieved their pricing targets despite choppy market conditions.
Ping An Life raised $1.2 billion from a debut dollar-denominated bond, while China Energy Reserve & Chemical Group (CERC) raised $400 million in acquisition financing and Woori returned to the offshore markets for the first time since its merger with Woori Financial Holdings to bank a $500 million offering.
Ping An lives it up
The life insurance arm of the country’s second-largest insurer by premiums split its A3- rated Reg S transaction into a $700 million three-year note and a $500 million five-year note.
After initially marketing the former at 150bp over Treasuries and the latter at 165bp over, indicative pricing was tightened to 5bp either side of 130bp and 145bp.
Final pricing for the three-year tranche was fixed at 99.713% on a coupon of 2.375% to yield 2.475% or 125bp over Treasuries.
The five-year note was priced at 99.323% on a coupon of 2.875% to yield 3.022% or 140bp over Treasuries, according to a termsheet seen by FinanceAsia.
Syndicate bankers said the order book reached a peak of $5.5 billion level, with an even split between the three and five-year tranche. It closed with $1.9 billion in demand for the three-year and $1.9 billion for the five year.
Bankers highlighted that Ping An Life achieved a higher subscription ratio than the three-times level China Life achieved last June for a $1.28 billion perpetual bond.
"Market conditions are volatile but investors welcomed the deal because of its rarity value,” one banker argued.
A total of 92 accounts participated in the three-year and 100 in the five-year. By geography, the three-year saw 96% distributed to Asia and 4% to Europe, while the five-year saw 95% placed in Asia and 5% in Europe.
By investor type, banks took 34% of the three-year with public sector institutions on 38%, fund managers 19%, insurers 3% and private banks 6%. The five-year saw 37% go to banks, 34% to fund managers, 22% to public sector institutions, 5% to insurers and 2% to private banks.
Investors are said to have benchmarked the three-year tranche against AIA’s 2.25% March 2019 bond, which was trading on a G-spread of plus 106bp on Tuesday. The pan-Asian insurance group also has a 3.2% March 2025 bond outstanding, which was trading on a G-spread of 144bp.
HSBC, Bank of America Merrill Lynch and CICC were the joint bookrunners of the transaction.
Shenzhen-based Ping An Insurance Group is a frequent borrower in China’s domestic bond market. According to Dealogic, the financial conglomerate, controlled by mainland billionaire Peter Ma Mingzi, raised $5.7 billion via 10 renminbi-denominated debt sales in 2015.
Aside from its insurance business, the group also has a controlling stake in China’s largest peer-to-peer lender Lufax, which is expected to complete an IPO later this year. Lufax raised $900 million in a series B fundraising round in December, valuing the Shanghai-based company at more than $18 billion.
CERC oils acquisition finance
State-controlled China Energy Reserve & Chemicals Group (CERC) also returned to the international bond markets for the first time since last May on Tuesday with a $400 million Reg S deal to finance the acquisition of a liquefied natural gas re-gasification plant and an oil terminal with storage facilities in China.
Aside from unstable market conditions, the company had to overcome challenges relating to its lack of rating and the fact its new bond does not have a vanilla structure.
Unlike its previous $200 million deal, CERC’s new three-year transaction deploys a guarantee structure and has a put option after nine-months at 101% in the event the acquisition does not take place. Initial pricing was pitched at the 6.25% level before being tightened down to 6.125% on an issue price of par.
The previous 5.25% May 2018 bond was trading on a mid-yield of 5.128% on Tuesday.
One banker said the order book for CERC’s new deal was oversubscribed by the end of the Asian morning, enabling the company to achieve its fundraising ambitions.
“The company was pretty happy with the final result as it has been able to expand its investor base,” one banker commented. “Raising $400 million in these markets is a good outcome.”
CERC is an oil and gas trading and logistics, plus distribution and support services, provider. Its two major shareholders are the Beijing Municipal Commission of Commerce on 30% and a subsidiary of CNPC’s Engineering branch on 28%.
Barclays and Wing Lung Bank were joint bookrunners for the bond.
Woori banks dollars
Korea’s second largest lender by assets was also back in the offshore markets on Tuesday with a $500 million five-and-a-half year 144a issue. The A1/A-A- rated bank initially marketed its deal at 130bp over Treasuries, before tightening pricing to 2.5bp either side of 115bp over.
Syndicate bankers said the peak order book stood at $1.9 billion before falling to $1.5 billion with good domestic demand although Korean regulations meant no more than 20% could be placed onshore.
A total of 85 accounts participated of which 83% came from Asia, 15% from Europe and 2% from the US. By investor type 34% went to fund managers, 50% to banks and treasuries, 11% to pension and insurance funds and 5% to private banks.
Final pricing was fixed at 99.599% on a coupon of 2.625% to yield 2.704% or 112.5bp over Treasuries.
Syndicate bankers said the borrower had been hoping to break through the 115bp mark so was happy with the result. In doing so, however, it offered a negligible new issue premium.
Mizuho calculated fair value at 115bp over Treasuries. “Korean US dollar credit curves are relatively flat,” it commented.
It also added that markets are still volatile with “onshore investors generally preferring quasi-sovereign financial credits and Korean lifers favouring 10-year bonds over five-year.”
Investors were also probably cognisant of the fact that more paper from the sector is due with a deal from KEB Hana expected within the next few days.
Woori also has the perennial issue of its privatization to contend with. The Korea Deposit Insurance Corporation (KDIC) currently owns 51% of the bank and has tried to privatize it four times since the end of the Asian Financial Crisis.
Korean newspapers report that the most recent attempt to sell the bank to a group of Middle Eastern funds has also failed because of falling oil prices. After giving up hope of selling a 30% stake to a single buyer, KDIC had been hoping to parcel it up between one fund in Abu Dhabi and two in Saudi Arabia. According to Korea JoongAng Daily it is now hoping to find interested parties in Europe instead.
Joint bookrunners for the bond deal were Barclays, Commerzbank, Credit Agricole, HSBC, JP Morgan and Soc Gen.
Evergrande’s ever-rising debt
The roster of dollar-denominated debt was launched into a market that had traded fairly flat on the day with the exception of a new deal from Guangzhou-based property developer Evergrande Real Estate, which priced on Monday and closed down on Tuesday.
The B2/B+/B+ rated group had raised $700 million from the combination of a private placement and public issue. However, investors told FinanceAsia they believed the final order book was small because of concerns the private placement had sucked demand out of the market.
The deal also came on a bad day for Evergrande, which was downgraded one notch by Moody’s on the grounds of “increased financial risk” because of its debt-funded acquisition strategy.
The rating agency also notched the new deal down to B3 because of structural subordination.
Final pricing for a $300 million Reg S three-year issue was fixed at par on a coupon of 8%.
The $400 million private placement issue was priced at 99.625% on a coupon of 7.85% to yield 8%.
BOCI’s sales desk said the deal traded down to 99.50% before closing the day at 99.62%/99.87%. In a sales note the Chinese bank concluded that the bonds were not cheap given they offered a 10bp yield kicker for three-months shorter duration to an outstanding bond.
But the bank added: “At least it gives them a little more than they needed to redeem their 9% 2016 bonds in a week’s time.”
In a research note ABCI added that Evergrande needed to access the international debt markets because the bond up for redemption – a Rmb3.7 billion ($564 million) note – was issued in the offshore dim sum bond market. China’s exchange controls make it difficult to raise funds onshore and then remit offshore.
“We don’t rule out the possibility that this bond issuance is also part of preparations for a large dividend payout,” it concluded.
Lead managers for the bond deal were Credit Suisse, China Merchants Securities (Hong Kong) and Haitong International.