Wan Hai lines up debut dollar bond

Wan Hai launches inaugural offshore corporate benchmark from Taiwan.

Wan Hai Lines launched Taiwan's first dollar-denominated corporate issue late on Tuesday (June 21) raising $325 million from a ten-year bond via Citigroup and UBS. The deal was launched through the group's wholly owned Singapore unit, Wan Hai Lines (Singapore) Ltd, in order to avoid Taiwan's 20% withholding tax on coupon payments.

The Baa2/BBB rated deal priced inside of initial guidance first presented to investors last week at roadshows in Hong Kong and Singapore around the 145bp level. Pricing was fixed at 99.688% on a coupon of 5.5% and yield of 5.541%.

This equates to 102.5bp over mid-swaps or 143bp over 10-year US Treasuries. Fees on the deal were a thin 20bp.

The order book is said to have closed at the $800 million level - an oversubscription ratio of 2.4 times. It was allocated to 65 accounts of which 45% were from Singapore, 39% were based in Hong Kong, 3% were Korean, and 13% were European. By investor type, 35% were asset managers, 45% were banks and the remaining 20% were insurers.

The deal was initially marketed on a range of $300 to $400 million, but bankers opted to keep the deal size restrained to maintain a limited investor book and offer optimal pricing for the issuer. In particular, they did not want the deal to slip in secondary market trading as recent issues for Thai Oil and Indosat have.

Clear benchmarks are thin on ground. The only other recent deal from Taiwan has been a subordinated debt issue for Chinatrust. Instead, bankers quote a $500 million 5.375% deal due March 2015 for China Merchants.

The Hong Kong listed group also operates in the shipping sector and has a similar rating of Baa2/BBB- although it is rated one notch lower than Wan Hai from Standard & Poor's. Having been priced at 113bp over 10-year Treasuries, its deal is currently bid at 140bp over.

This means Wan Hai has come at a 3bp premium to China Merchants even though it has a slightly higher rating. The premium can largely be attributed to a weakening of market conditions again over the past week and the power balance moving back in favour of investors.

Another comparable is the recent Baa3/BBB- rated $300 million 10-year deal from Thai Olefins, which priced at 149bp over Treasuries and was trading around the low 150bp range at time of Wan Hai's pricing.

Wan Hai is choosing to tap the market now in order to take advantage of lower interest rates to facilitate the funding of its purchase of 10 new shipping vessels delivery of which is slated for 2007 and 2008. The US Federal Reserve's benchmark rate was raised to 3% at its last meeting March 3, and general consensus believes another 25bp rise could be on the cards after its June 30 meeting. This would mark the eighth such increase in twelve months.

Wan Hai was also looking to take advantage of its recent credit rating upgrade from BBB- to BBB by Standard & Poor's.

Although, the deal represents Wan Hai's inaugural foray into the bond market, it borrowed $250 million via the loan market last year. Between 2005 and 2008, Wan Hai is expected to take delivery of 19 new shipping vessels, worth about $886 million.

Wan Hai is Taiwan's third largest shipper by market value, with shipping routes to Taiwan, Kanton and Kansai areas of Japan, Korea, Mainland China, Hong Kong, Philippines, Thailand, Malaysia, Indonesia, Singapore, Vietnam, Burma, Cambodia, India, Pakistan, Sri Lanka, as well as the Middle East.

For the period ending March 31, Wan Hai reported net sales of NT$11 billion for the first quarter, and a net income of NT$1.4 billion over the same time frame, representing a 17% and 29% rise respectively.

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