Zoomlion slips through with $600 million Goldman-led bond

After marketing a deal for two days, Zoomlion raises $600 million, getting its deal across the line and beating the January crowd.

Launching a trade at the tail end of a busy year, when most of the market is off to long boozy lunches or year-end festivities, may not seem like an obvious choice on timing, but Chinese construction machinery company Zoomlion did just that this week, pricing its $600 million 10-year bond last night.

“We decided to come now as January will be a busy month, and who knows what will happen in the US with the fiscal cliff,” said one source. “Zoomlion was the only deal in the market and did not have any competing supply.”

Zoomlion made its debut in the dollar bond market with a $400 million five-year deal in March, arranged by BOCI, Credit Suisse and Goldman Sachs. The issuer was Zoomlion HK SPV and the bonds were guaranteed by Zoomlion Heavy Industry Science and Technology.

At that time, Chinese foreign exchange officials had given Zoomlion approval to guarantee up to $1 billion of bonds. However, there were terms in the first deal that prevented the issuing vehicle from taking on more debt — and those terms can only be changed if the majority of bondholders agree to an amendment.

According to a source, Zoomlion already has the support of bondholders and will pay $2 for $1,000 in principal amount for those that validly consent before the expiration date, which is December 13, 11pm New York time.

The company also had the option to issue the bonds through another SPV, but that would have meant going through the time-consuming process of getting approval for another guarantee.

Push-back on pricing
Zoomlion was in the market for two days, which is unusual. It went out with initial guidance in the area of 6.25% on Wednesday and priced on Thursday night. According to a source, the marketing period dragged on for two days because the consent solicitation was taking place concurrently and some of the investors that held the existing Zoomlion 2017s were also looking at the new deal and needed some time.

While Zoomlion was marketing its deal, a number of banks put out reports suggesting that the 6.25% area initial guidance was fair value or marginally expensive. In the end, Zoomlion priced its bonds to yield 6.25%, with final pricing not budging much from the initial guidance, suggesting resistance from investors on any attempt to tighten pricing.

Nonetheless, on a spread basis, Zoomlion lowered its funding costs with its 10-year bond, pricing at 10-year Treasuries plus 456bp, nearly 150bp inside the five-year Treasuries plus 599bp spread it paid for its five-year debut bond.

Its latest deal helped lengthen the company’s curve as well as widen the investor base, with some 140 investors participating, compared to the 80 or so that took part last time. And, it also received what the source described as “significant uptake” from US and European investors — whereas 88% of the previous deal was allocated to Asian investors, with limited participation from European and US accounts.

Goldman Sachs was the sole bookrunner and global coordinator.

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