Euroweek debt capital markets, December 2 2010

Euroweek, Debt capital markets round-up, December 2 2010

CHEXIM

Dim sum bonds – the term given to renminbi bonds issued in Hong Kong – continue to flourish in a hungry institutional market. This week Export-Import Bank of China, known as Chexim, priced a dual tranche RMB5 billion bond whose institutional tranche was covered 53 times over.

The deal, comprising a RMB4 billion three-year retail tranche and a RMB1 billion two-year Regulation S institutional tranche, represented Chexim’s third RMB bond in Hong Kong, but it seems that every new issue demonstrates greater demand for this growing market. Bookrunners say there have now been 42 such issues since China Development Bank’s landmark first issue in 2007. Half of them have come since July, when liberalization of issuance processes allowed issuers to launch without the regulatory approvals they had previously needed, and to invest the proceeds with much greater freedom.

The retail tranche, with a 2.65% coupon, was offered from November 9 to 26 with Bank of China (Hong Kong), HSBC and Standard Chartered as joint bookrunners. At press time it was not clear how well covered the retail bond had been, since it was being distributed through a number of bank branch networks, but it was clear the deal had been successful. The institutional deal carried a 1.95% coupon and attracted RMB53 billion of demand. It had the same lead managers as the retail deal, but Standard Chartered had a no-books role on the institutional side.

Apart from the level of oversubscription, the institutional deal was significant because of where it went. About 88% of the deal went into Asia, chiefly Hong Kong, but 12% went into Europe. By comparison a recent Hong Kong RMB deal from China Development Bank placed only 4% into Europe, and the landmark McDonald’s deal that immediately followed the July relaxations placed almost entirely into Hong Kong.

“For the foreseeable future Hong Kong will remain a huge, driving centre for these transactions: new accounts are opening all the time, private banks are looking to increase their holdings, and both long-only and hedge funds are seeking allocation as well,” says someone close to the deal. “But increasingly in Europe very large fund managers are seeing appetite among their clients to get access to this story. It’s going to develop quite quickly: there are plenty of people active now who didn’t even have accounts a month ago, let alone six months ago.” Roughly 50% of the institutional deal went to banks, 19% to private banks and 31% to funds.

Chexim plans to use the money partly to refinance a previous RMB3 billion bond in Hong Kong, and also for general corporate purposes. It is likely to be a regular issuer in this new market.

Shortly after the Chexim deal’s success became clear, the Ministry of Finance announced a RMB5 billion institutional bond with three, five and 10-year tenors, and coupons of 1%, 1.8% and 2.48% respectively. This deal, while popular, generated slightly less overall demand than the Chexim one, bringing in around RMB50 billion of commitments, or a 10 times oversubscription. Bank of Communications was the issuing agent on this deal. It will follow this with a two-year retail tranche that will begin selling next week: the RMB3 billion offer will have a 1.6% coupon and will be open for subscription from December 7 to 14, with bank of China (Hong Kong), Bank of Communications and ICBC (Asia) as bookrunners. Bankers report a full pipeline for next year.

There has been some discussion about the way these bonds have tightened in the secondary market, but those close to the deals say they are barely trading at all. “Our challenge is not being able to get the allocation in the secondary market,” says one banker. “Almost nobody is selling. The minute anyone comes out with a small clip, it’s immediately snapped up.”

Incitec

Incitec Pivot, the Australia-based fertiliser and explosives manufacturer, raised US$500 million on Tuesday in a 144a private placement.

The five-year notes are rated Baa3/BBB and were issued by the Incitec Pivot Finance vehicle but guaranteed by the parent. They pay a 4% coupon and a spread of 275 basis points over US Treasuries, with an issue price of 99.2 and a yield of 4.179%.

This is the second 144a private placement for Incitec after an earlier one in December 2009. The market continues to be a useful source of liquidity for Australian borrowers: in September, Woolworths raised US$1.2 billion in five and 10-year tranches in a 144a private placement, while National Australia Bank has also been a regular issuer. Bank of America Merrill Lynch, Citigroup and RBS were joint leads on the Incitec deal, which will be used to refinance corporate debt.

Briefs

Malaysia Airports Capital launched a RM1 billion 12-year sukuk issue yesterday through joint bookrunners Citibank and CIMB. The notes are rated AAA with 4.6%-4.8% guidance, and use the murabahah structure.

Bukit Makmur Mandiri Utama (Buma), the Indonesian mining services group, has issued a tender offer for its outstanding US$315 million senior secured notes due 2014. Buma has also issued a consent solicitation, which seeks to remove restrictive covenants and to allow the sharing of security between different entities. In aggregate, this would allow the issuer to refinance its outstanding bonds, repay another outstanding loan, and would lead to it paying US$1,060 per US$1000 of principal amount on the bonds to redeem them, including a US$55 early consent fee. The offer expires on December 27. Credit Suisse, ING and Morgan Stanley are leading the process.

Hindalco Industries, part of the Aditya Birla Group, is preparing a US$4 billion bond and loan financing which will include a US$2.5 billion seven-year bond and a US$1.5 billion senior secured loan. Five banks have been mandated: Bank of America Merrill Lynch, Citigroup, JP Morgan, RBS and UBS. The financing will refinance debts at a subsidiary of the group in the US, Novelis.

Also in India, Infrastructure Development Finance Co (IDFC) is expected to launch a global bond issue early next year, its first. It has not yet mandated lead managers but is expected to do so within the next two weeks.

Japan International Cooperation Agency yesterday priced a Y20 billion 20-year bond. The issue, which does not carry a government guarantee, priced at a coupon of 2.098%, an issuer price of 100 and a re-offer spread of 12 basis points over 20-year Japanese government bonds. Rated AA by Standard & Poor’s, the deal was lead managed by Nomura Securities and Merrill Lynch Japan Securities. It is a zaito bond, meaning an issue from a state agency or quasi-governmental unit.