Unrated Huawei sells aggressively priced bonds

Despite being priced inside fair value, Huawei's new five-year and 10-year bonds traded up in the secondary market as investors continued to pile in.

A renewed taste for risk among Asia's G3 bond investors helped Chinese technology company Huawei Investment Holdings secure strong demand for an aggressively priced $1.5 billion dual-tranche deal on Tuesday night.

The employee-owned telecoms equipment and smartphone maker garnered some $10 billion of demand before the release of final pricing, beating even the impressive $5.5 billion order book built up by Chinese property group Road King for its high-yield issue on Monday.

The strong interest came in the wake of hawkish comments by US Federal Reserve chair Janet Yellen, who said improving economic conditions made a rate hike more likely at the Fed's next meeting.

Interest from central banks and sovereign wealth funds helped push the final order book for Huawei's five-year deal to $4.5 billion from 260 accounts, while the 10-year bond garnered $3.1 billion of orders from 200 accounts.

“Heavy buying is evident in high-grade and riskier high-yield bonds because of low default risk in Asia,” a Hong Kong-based portfolio manager told FinanceAsia. “Recent strong demand for corporate bonds reflects the bright prospects of the US economy and the fact that valuation of Asian credits is stretched due to low supply of new bond sales."

“There is not a whole lot of value even in high-yield bonds, so investors have to be more tactical in their trading strategies,” the fund manager said.

Initial guidance for the five- and 10-year bonds was set at around 160bp and 190bp over US Treasury yields, respectively. For the shorter-dated bond, final guidance was set at 2.5bp each side of 135bp, before settling at 99.767 to yield 3.301%, or 132.5bp over Treasuries.

On the 10-year note, final guidance was pitched at 2.5bp each side of 165bp, before pricing at 99.081 to yield 4.113%, or 162.5 bp over US Treasuries, according to a term sheet seen by FinanceAsia.

The new deal, issued under the name Proven Glory Capital Limited, traded up on Wednesday, as investors in Asia and Europe continued to build positions in the new print. “We see some European accounts buying in the secondary market, thanks to the company’s marketing efforts in the region,” a syndicate banker said.

The February 2022 $1 billion note was quoted at 100.139/100.285 to yield 128/125bp over five-year Treasuries. The February 2027 $500 million note was quoted at 99.602/99.779 to yield 161/159bp over 10-year Treasuries, according to market data.

Both tranches were priced inside the secondary curves of Huawei's existing bonds or industry comparables. The best benchmark for the five-year note was Taiwanese technology group Honhai’s September 2021 $600 million bond, which was trading at 97bp over Treasuries, or a G-spread of 105bp.

As for the 10-year, Huawei’s outstanding May 2026 $2 billion note was trading at 165bp over 10-year Treasuries, or a G-spread of 170bp.

Asian investors took 80% of both tranches, with the remaining 20% being allocated to European accounts.

For the five-year note, fund managers took 62%, central banks and sovereign wealth funds 20%, banks 14% and private banks 3%. The remaining 1% went to insurance groups. Meanwhile, fund managers took 63% of the new 10-year bond, insurance groups 27%, banks 7% and private banks 3%.

Huawei’s smartphone sales rose 29% year on year to 139 million units last year, bucking an industry trend of stagnant growth.

The bookrunners were Bank of China Hong Kong, CitiDBSHSBC and Standard Chartered.

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