Yanzhou Coal returns with $500m perpetual bond

Yanzhou Coal's new perpetual bond traded up in the secondary market, despite tighter than initially expected pricing.

Yanzhou Coal, one of China’s largest coal companies, returned to the international bond market on Thursday, raising $500 million in a perpetual non-call three-year bond.

The Reg S sale came after a slew of new issuance from once-troubled commodity companies in the region, including Noble Group of Singapore and Indika Energy of Indonesia, underscoring the renewed optimism in the sector as natural resource prices have recovered.

The state-owned company, rated B2/BB-/B by Moody’s/S&P/Fitch, captured more than $4.5 billion of orders at one point, according to a syndicate banker running the deal.

The banker added that the new Yanzhou perpetual firmed slightly in early secondary market trading on Friday, rising to a cash bid price of 100.5 even though the bond was sold without any new-issue concession. 

The leads – Deutsche Bank and CMB International – reached out to investors on Thursday with initial price talk centred around the “6.25% area”, before narrowing the range to 5.75% area. Final pricing was fixed at par to yield 5.75%, according to a term sheet seen by FinanceAsia.

The coupon rate is fixed for the first three years. If the company does not exercise the call option on April 13, 2020, the coupon rate will be automatically reset to the then-prevailing three-year US Treasury yield plus an initial spread of 430 basis points and a 400bp step-up, according to the term sheet.

In terms of fair value, the new print from Yanzhou Coal was priced inside, or in line, with the outstanding yield curves of some of its comparables. “The differential between Lenovo’s senior and perpetual bonds was about 120bp, and the next comparable was Hong Kong Airlines, which has a 100bp gap,” the banker said.

Yanzhou Coal’s outstanding 5.73% May 2022 bond traded with a yield of 4.8% on Thursday, which placed fair value somewhere near 5.8% based on the differential of the outstanding curves, the syndicate banker said.

On the same day, Regal Hotel, an unrated issuer from Hong Kong, priced a $225 million perpetual bond at a yield of 6.5%, tightening from its initial marketing range of 6.875% area.

Both Yanzhou Coal and Regal Hotel had not released any deal statistics before publication.

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