US investors drive pricing on $4 billion Cnooc bond

Cnooc prices its first SEC-registered deal, printing through its curve and attracting strong demand from US investors.
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Cnooc agreed last year to buy Canada’s Nexen for $15.1 billion</div>
<div style="text-align: left;"> Cnooc agreed last year to buy Canada’s Nexen for $15.1 billion</div>

China National Offshore Oil (Cnooc), the mainland’s third-biggest oil and gas company, closed the largest dollar bond from an Asian borrower in a decade early Friday morning.

The $4 billion multi-tranche deal out-sized Sinopec’s recent $3.5 billion bond, which printed just two weeks ago, and was also the biggest dollar bond to be issued by a Chinese state-owned enterprise.

China has a thirst for natural resources and energy assets, and companies that have been busy making acquisitions offshore are now turning to the bond markets to pay down loans. Cnooc is just the latest example, having agreed late last year to buy Canada’s Nexen for $15.1 billion — in what was the largest overseas takeover by a Chinese company.

The proceeds from Cnooc’s bond issue will be used to partly repay a $6 billion bridge loan. The bonds were issued by Cnooc Finance and guaranteed by Cnooc, which is rated Aa3/AA-/A+. The Hong Kong-headquartered Cnooc is listed on the New York Stock Exchange and the Hong Kong Stock Exchange. It is 64%-owned by China National Oil Corp and focuses on the exploration and production of offshore resources, with operations in Asia, Australia, North America and Africa.

The deal was split between a $750 million three-year tranche, a $750 million five-year tranche, a $2 billion 10-year tranche and a $500 million 30-year tranche. The initial price guidance was Treasuries plus 130bp, 160bp, 185bp and 185bp, respectively, and the final guidance was revised twice, which was unusual, thanks to strong interest from US investors.

The three-, five-, 10- and 30-year tranches priced at Treasuries plus 95bp, 120bp, 155bp and 150bp, respectively, so there was a strong tightening by 30bp to 40bp across all the tranches. There was a slightly inverted curve between the 10- and 30-year tranches, with the 30-year piece printing at a smaller spread than the 10-year piece.

The bonds priced inside Cnooc’s curve, according to a source, and tightened about 3bp across all four tranches in secondary.

It was SEC-registered, which opened up the bonds to a wider pool of US investors, including funds that track SEC-registered bonds. The deal was the first SEC-registered transaction for Cnooc and it cost about $300,000 to $400,000 more for documentation.

There was unusually strong allocations to US investors, which were allocated 67% of the three-year tranche, 66% of the five-year tranche, 79% of the 10-year tranche and 56% of the 30-year tranche. Asian investors, in contrast, took a relatively small chunk of the bonds. They were allocated 20% of the three-year tranche, 21% of the five-year, 11% of the 10-year and 31% of the 30-year. European investors were allocated 13% of the three- and the five-year tranches; and 10% and 13% of the 10- and 30-year tranches, respectively.

The deal attracted a massive $23.8 billion worth of demand from investors. The three- and five-year tranches each attracted $5 billion and $6.8 billion of demand, respectively, and the 10- and 30-year tranches attracted $7.5 billion and $4.5 billion, respectively.

The fees were about 30bp and they were spread evenly among the eight banks, according to a source. Bank of China, Bank of America Merrill Lynch, CICC Hong Kong Securities, Citi, Credit Suisse, Goldman Sachs, J.P. Morgan and UBS were joint bookrunners.

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