Why ChemChina displaced Syngenta for jumbo bond

Six months after Syngenta pulled a $7 billion bond sale, its Chinese parent, ChemChina, sells the largest corporate bond sale by an Asian issuer so far this year.

China National Chemical Corporation (ChemChina) pulled off Asia's biggest bond deal so far this year on Wednesday, raising $6.4 billion across a range of maturities as it kick-started the stalled refinancing of its record-breaking acquisition of Swiss pesticide and chemicals maker Syngenta.

The success of the investment-grade, blockbuster Reg S deal – which has five dollar tranches stretching out to 30 years and a four-year tenure denominated in euros – shows investors remain eager to use their money to help fund aggressive takeovers, bankers and investors said.

But it also shows investors' preference for only the strongest credits after state-owned ChemChina's newly acquired subsidiary Syngenta pulled its own $7 billion debt sale in September as investors fretted over its ability to fund a raft of class-action lawsuits related to its genetically modified corn.

Syngenta's credit rating has been under mounting pressure since its $44 billion takeover and is now threatened with losing its investment grade status.
“Without strong parent support from ChemChina, debt investors, especially the international ones, are hesitant to take on the credit risk,” a senior banker familiar with ChemChina’s thinking, told FinanceAsia early Thursday.
Although ChemChina has said it remains committed to support Syngenta’s credit rating, there is no explicit support or public statement from either ChemChina or the Chinese government, three investors separately told FinanceAsia.

Investors clamoured for the new ChemChina deal, despite the rates volatility seen in recent weeks, with the order book for the US dollar bonds alone reaching $12.3 billion at peak level, according to a banker familiar with the transaction. The banker added that the demand was driven primarily by overseas investors in Europe and Asia. The final order book settled at $9.8 billion for the US tranches aside from the 30-year bond, the banker said.

Taking the latest debt sale into account, ChemChina has about $25 billion in total debt outstanding, according to Dealogic. The bonds have varying maturity dates, ranging from November 2018 to March 2048. There are also seven perpetual bonds, which are callable equity-like securities without a maturity date. 

The new bonds will help ChemChina to dispel any concerns related to its ability to service the more expensive bridge loans backing the Syngenta takeover. 

“The large size is basically entirely related to the Syngenta acquisition, consolidating various bridging and bank loans,” said a Hong Kong-based investor who attended a roadshow meeting with ChemChina executives.


The success of the offering has also been hailed as an important  test for the broader market, which had been showing some signs of weakness in recent weeks. IL&FS, an unrated Indian corporate, for example decided against selling a high-yield bond only a day earlier.

"The ChemChina deal boosts sentiment in the regional market," a second banker told FinanceAsia. "The market has the capacity to take jumbo deals, and we're expecting more to come this year."

The pricing of the ChemChina bonds nonetheless reflect choppy market conditions and lingering concerns over its commitment to Syngenta, investors said.

For ChemChina, a further downgrade of Syngenta’s credit rating would significantly increase its cost of borrowing in the international market, and potentially trigger a sell-off of some existing bonds by institutional investors such as insurance companies and pension funds, which can’t own junk-rated or speculative-grade bonds due to their conservative mandates.

“At this point, we can only assume there is a high chance of a government support to the investment grade rating of Syngenta,” the Hong Kong-based investor said.

According to a banker’s estimate, the company paid an extra 10 basis points or so over its secondary curve across the five tranches of the US dollar bonds. On Thursday, the bonds all traded up in the secondary market, with yields tightening by 2bp to 15bp, according to market data. 

S&P in October placed Syngenta’s rating on credit watch with negative implication, after the agency downgraded the world’s largest crop chemical company to BBB- in May, its lowest investment grade rating. It had a strong single A rating with all the three rating agencies before ChemChina’s acquisition.

According to Dealogic, ChemChina's $6.4 billion debt sale is the largest corporate bond deal in Asia so far this year and the second-largest on a global basis after CVS healthcare sold $40 billion of debt. 

¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media