after bookbuilding began and
dropped from two. Meanwhile,
China Evergrande Group
dropped BANK OF AMERICA MERRILL
LYNCH midway through a deal
in January then added it to the
syndicate for another offering
in April after bookbuilding had
started.
‘PLAYING WITH FIRE’
DCM bankers said that some
of the arrangers that are
most commonly added at a
late stage often invest their
own money in exchange for
a bookrunner role. Some sell
the bonds the next day below
the reoffer price, knowing that
they will still make a profit on
the overall transaction once
they receive their bookrunner
fee, but causing the bonds to
underperform in secondary
trading.
“Adding or removing
bookrunners based on their
contribution by investor
engagement or proprietary
orders through their balance
sheet or trading book is going
to weigh on secondary trading
for a few days, so these bonds
should underperform,” said a
DCM syndicate banker.
“A big Chinese bank issuer
could probably do this without
any negative effects, but
for a low-investment-grade,
inaugural issuer they would be
playing with fire.”
The secondary performance
of bonds following a change
of bookrunners was mixed: 10
traded up on their first day, 13
fell, and the rest were illiquid.
“By definition, deals with
mainly second or third-tier
Chinese bookrunners tend to
place bonds with their less
experienced clients who likely
hold for maturity, unlike
international investors,” said
the fund manager.
If a large part of those illiquid
bonds ended up being held by
the bookrunners, that would
also explain why they have not
traded.
“I don’t think bookrunner
changes have an impact on
investors,” said another DCM
banker. “They just make life
harder for us.”
Safe-haven bonds draw investors
Bonds Singtel, Chugoku Electric price flat to curves on strong demandBY DANIEL STANTONTwo Asian issuers took
advantage of the dearth of
Asian investment-grade bond
supply in recent weeks to
revive the market and print flat
to their curves.
SINGAPORE TELECOMMUNICATIONS
last Tuesday priced US$750m
2.375% 10-year senior
unsecured bonds at 99.259 to
yield 2.459%, drawing final
orders of over US$2.7bn from
more than 140 accounts.
Pricing was equivalent to
Treasuries plus 90bp, the
tight end of final guidance of
90bp–95bp, and inside initial
guidance of 110bp–115bp.
The same day, Japanese
electricity utility CHUGOKU
ELECTRIC POWER sold US$500m
five-year Reg S bonds at par
to yield 2.401%, equivalent to
Treasuries plus 95bp, drawing
orders of more than US$2.1bn
from 122 accounts.
Pricing came at the tight end
of final guidance of Treasuries
plus 95bp–100bp, and inside
initial price thoughts of 120bp
area.
Only a handful of Asian
investment-grade deals have
priced in US dollars this month:
Triple B rated Orient Securities
and Dongxing Securities
sold US$300m and US$400m
three and four-year bonds,
respectively, on August 8 and
13, while the last big deal was
Sinopec’s US$2bn three-tranche
offering on August 1.FROZEN
The Asian offshore pipeline
practically froze since China
allowed its currency to drop
beyond Rmb7 to the dollar
on August 5, causing other
emerging market currencies to
weaken and stocks to sell off.
That also caused Treasuries
to tighten, as investors looked
for safe havens, and as stability
returned in recent days it
presented an opportunity for
investment-grade credits tocome to market.
The dry spell in Asian IG
meant that the leads looked
to the US market to gauge
the appropriate new issue
concession. New issues there
have paid 2bp–5bp over their
secondary curves lately.
Singtel came out with initialguidance of a range rather than
a single number, an approach
that it and fellow Singaporean
issuers Temasek Holdings
and Clifford Capital have
used before. Orders were over
US$2bn after lunch and peaked
at US$3.25bn when final
guidance was announced.
The Singapore-headquartered
telecoms company had been
looking at a size of around
US$500m and the demand
allowed it to print US$750m.
In the end, Singtel looked to
have priced flat to its secondary
curve, based on its outstanding
2028 bonds that were seen at a
G spread of 90bp.
“I think they tightened as
much as they could in this
market,” said a source close to
the deal.
Market participants said that
Singtel’s business, which has
its core markets in Singapore
and Australia, looked resilient
even as recession fears grow. It
also benefited from its strong
ownership, with Singaporean
government investment
holding company Temasek
holding a 52.6% stake as of July
10.
Singtel Group Treasury
is the issuer and the bonds
are guaranteed by Singtel.Expected ratings are A1/A+
(Moody’s/S&P), on par with the
guarantor.FULLY CHARGED
Meanwhile, Chugoku Electric’s
deal was not only larger than
its previous US$300m five-year
print in February, but came5bp tighter in Treasury spread
terms, despite more volatile
market conditions.
The existing 2024 bonds
were seen at 91bp–92bp over
Treasuries, indicating that the
issuer paid little to no new
issue concession.
The new bonds have an
expected A3 rating by Moody’s.
Asian investors took 88%
of Singtel’s Reg S bonds and
EMEA accounts 12%. By investor
type, fund managers and asset
managers booked 43%, bank
treasuries 22%, public sector
investors and pension funds
16%, insurers 14%, and private
banks and others 5%.
Asia accounted for 96% of
Chugoku Electric’s bonds and
EMEA 4%. By investor type,
fund managers and asset
managers booked a combined
53%, banks 24%, insurers 15%,
and private banks and others
8%.
Citigroup, HSBC and Standard
Chartered Bank were joint
bookrunners for the Singtel
trade, while Mizuho, SMBC Nikko
and Morgan Stanley were joint
bookrunners for Chugoku
Electric’s deal.
Both bonds were seen 1bp
wider on Wednesday, as Asian
credit widened 1bp. For daily news stories
visit http://www.ifrasia.comThe Asian offshore pipeline practically froze
since China allowed its currency to drop
beyond Rmb7 to the dollar on August 5,
causing other emerging market currencies to
weaken and stocks to sell off.