Euroweek: Asian debt capital markets round-up, April 20

Euroweek Debt Capital Markets, April 20 2011

TATA

Tata Power was expected to price an issue of 60-year US dollar bonds yesterday – but looks likely to raise less than originally expected.

Tata’s long-dated bond, which will be callable at five years, is being led by joint bookrunners Deutsche Bank, Goldman Sachs and UBS. It was being marketed at a coupon of 8.5% to 8.75% earlier this week. It is understood the issuer was initially seeking $500 million, although on Monday Tata Power itself stated that it was seeking to raise US$300 to 400 million “with final size to be determined by market demand.”

The transaction is expected to receive 50% equity treatment in India, like a perpetual bond; indeed, many in the market had expected the deal to take a perpetual structure. Tata Power had initially talked about a “hybrid capital offering,” which may explain the confusion.

The bond will pay a fixed rate for the first five years, and also be fixed for the next five, but reset over the prevailing US treasuries plus the initial spread. If not called at 10 years, it moves to the floating 3-month US$ Libor, plus the initial margin, plus a further 100 basis points.

Tata Power is India’s largest private power utility and is borrowing through an overseas subsidiary in order to expand its generation capacity through new power projects or acquisitions. The company said the funds could be used to secure further long term coal supplies by investment in coal mines or assets outside India, as well as for repayment of existing loans.

Executive Director (Finance) S Ramakrishnan said: “This long term financing enhances our ability to achieve our strategic goals of securing sustainable sources of supply for our rapidly growing power generation base.” The company already has installed generation capacity of over 3120MW and is active in generation, transmission, distribution and trading; it has said it is “poised for five-fold growth.”

GUANGZHOU

Guangzhou R&F Properties was on the road this week marketing two offerings, likely to be launched simultaneously, of offshore RMB and US dollar bonds.

Credit Suisse and Goldman Sachs are global coordinators, with Citi and Morgan Stanley as joint books. All four houses took part in a roadshow covering Hong Kong, Singapore and London, which was due to conclude on Wednesday with terms – including size – expected to be announced shortly thereafter. It is understood the RMB deal will be three-year, and the US dollar deal, five years. The dollar deal will be Regulation S only. While the likely size of the dollar deal is unclear, it is understood the RMB portion will be RMB1 billion.

Guangzhou R&F, the real estate developer, is venturing overseas in light of China’s credit tightening onshore. Concerns about overheating and inflation have limited the availability of bank lending, with real estate particularly in the spotlight, ending what has previously been a very generous source of funds. On April 17 the People’s Bank of China raised the reserve requirement ratio by 50 basis points to 20.5% for Chinese banks.

The issuer name is Big Will Investments, but the deal is guaranteed by R&F Properties (HK) Company Limited, a subsidiary of Guangzhou R&F; the issuer will then lend the proceeds to that subsidiary through an inter-company loan. The money will be used to finance offshore expansion opportunities, repay existing debt, fund interest reserve accounts and for general corporate purposes, said someone close to the deal.

CNPC

A bond sale worth at least $3 billion was expected to price last night in New York hours for China National Petroleum Corp.

The issue of five, 10 and 30-year Regulation S/Rule 144a bonds is being led by joint global coordinators Citigroup, ICBC International and Standard Chartered, with joint bookrunners Bank of America, Merrill Lynch, BOC International, Deutsche Bank and HSBC.

This week the five year bond was being marketed at 120 to 125 basis points over US Treasuries, the 10-year at 140bp and the 30-year at 165bp over. A roadshow that commenced on Monday April 11 has since passed through Singapore, London and several US cities, concluding in San Francisco on Tuesday (US time).

CNPC, China’s largest oil company, which is rated A1/A+/A+ (Moody’s/S&P/Fitch), may yet raise as much as $5 billion in the deal. If it does, it would match Hutchison Whampoa’s 2003 US dollar global as the largest ever G3 bond from ex-Japan Asia.

Matching Hutch would be quite an achievement given that CNPC has no track record of borrowing in offshore debt, although it has raised funds in dollars before, through an onshore FRN which raised US$1 billion in three-year paper in 2009. That was the first onshore dollar bond in China.

Whatever it raises, it is certain to become the largest deal from Asia this year, trumping the US$2.75 billion five-year global bond issue from the Asian Development Bank in February.

The issuer is CNPC (HK) Overseas Capital, a wholly owned subsidiary of CNPC Finance (HK), which is itself a subsidiary of CNPC and serves as its offshore treasury centre.

MORE DIM SUM

The offshore RMB market continues to thrive. In addition to the Guangzhou R&F deal discussed in the separate story, two more deals were approaching launch at press time, from BYD and China Zhongwang Holdings.

First to launch should be BYD, the Chinese car battery manufacturer. This three-year bond is expected to raise RMB1 billion at a yield of 4.5%, having been marketed at 4.25% to 4.5%. UBS is the sole bookrunner on this deal, with CCB International as joint lead.

It will be followed by China Zhongwang, the aluminium products manufacturer, which was due to complete a roadshow in Singapore on Wednesday having started earlier in the week in Hong Kong. Barclays Capital and Nomura are leading this deal, which like BYD will be both RMB-denominated and settled.

Additionally, Wing Lung Bank has been marketing a RMB500 million RMB certificate of deposit (CD) through Standard Chartered as sole bookrunner. And China Power New Energy is understood to be preparing a three-year RMB offshore deal, with yield being discussed around the 3.5-3.75% range.

The deals will feed off the continued imbalance between the volume of RMB deposits outside China, and the availability of deals with decent yield in which to put them. Many bankers expect record volumes of offshore RMB issuance this year to build on the exceptional success the market enjoyed in 2010 after new rules agreed between the People’s Bank of China and Hong Kong Monetary Authority greatly expanded the field of issuers who can borrow in this market.

HYUNDAI STEEL

Hyundai Steel completed a $500 million debut bond on Friday. The five-year deal priced at 249bp over Treasuries.

The deal, lead managed by Bank of America Merrill Lynch, Citi, Credit Suisse, HSBC and JP Morgan, tightened considerably from initial guidance of 270 basis points. Hyundai Steel is rated BBB-.

Part of the popularity was understood to be about scarcity: few Korean credits of this rating have issued dollar bonds, as single A credits are more common. The ability to get yield on a steel company, and thus a commodity play, proved appealing to investors, and the bond quickly rallied further to 235 basis points over after launch. Some US$2.8 billion of orders were placed at the revised guidance of 249-251bp – and considerably more at 270 – with the two main buying markets being the US and Korea itself.

The deal priced with a coupon of 4.625% with a reoffer of 99.788 to yield 4.673%. The bonds have a change-of-control clause with a put option of 101% plus accrued interest.

BRIEFS

WHARF: Wharf Holdings is planning a 10-year US dollar bond issue. UBS is the sole lead manager on the bond, which has offered guidance of 240 to 250 basis points over US Treasuries. The bond will be rated A- by Fitch Ratings.

CITI: The Australian arm of Citigroup priced a A$760 million residential mortgage-backed securities (RMBS) offering on Tuesday through its Securitised Australian Mortgage Trust (SAMT) vehicle. The deal follows a A$750 million RMBS issue from Macquarie Securitisation on Friday through its Puma Masterfund P-17 Series A vehicle, which was upsized from an initial A$500 million borrowing.

UNIFLORA: A planned issue from Uniflora Prima, the Indonesian cocoa processing company, has been postponed. The deal, led by ING, had expected to raise up to US$300 million through a Regulation S/Rule 144a five-year non-call three bond.