FRONT STORY ASIAUS investors revive Asian bonds
AIA and Baidu revive issuance
Asian issuers returned to the offshore bond
market after a two-week absence, but US
investors are likely to be critical to the
success of primary issues for months to
come.
On Tuesday, insurer AIA GROUP (A2/A/A+)
COMPLETEDûTHEûlRSTûWIDELYûMARKETEDûDOLLARû
bond issue from Asia since March 11,
followed a day later by Chinese internet
lRMûBAIDU, rated A3/A (Moody’s/Fitch), with
a US$1bn dual-tranche deal.
Both deals were marketed to US investors,
who drove the trades and took the largest
part of each offering, continuing the buying
spree that saw the US high-grade market
break records last month.The success of a US$1bn 10-year deal for
A3/A– (Moody’s/S&P) rated insurer AFLAC on
Monday prompted some US investors to
approach AIA about issuing, and the pan-
Asian insurer sold US$1bn of 3.375% 10-year
bonds at 99.706 to yield 3.410%, equivalent
to Treasuries plus 275bp.
Recent high-grade issuers in the US
market have been willing to pay new issue
concessions of as much as 50bp–75bp to
achieve chunky deal sizes, demonstrate
market access and ensure they are cash-rich
in case the economic downturn lasts longer
than expected.
Initial price thoughts for the AIA trade
were Treasuries plus 325bp area, which was
around 75bp back of fair value on its 2029
bonds, quoted at Treasuries plus 245bp,
though those are fairly illiquid. Ten-year
bonds from Prudential and Met Life were
SEENûATû4REASURIESûPLUSûBP ûWHILEû!mACSû
2030s were at 280bp.The new issue premium was seen at
20bp–25bp over a hypothetical 10-year point
on AIA’s curve.
The sharp decline in Treasury yields in
recent months meant that the coupon and
yield were both lower than those on AIA’s
10-year bonds issued last year, when it
printed 3.6% bonds at 99.493 to yield 3.661%.
AIA was spun off from US insurer AIG
FOLLOWINGûTHEûLASTûlNANCIALûCRISISûANDûASûSUCHû
has a big following in the US. It has tended
to focus its marketing efforts for bond sales
there rather than in Asia, and Asian buyers
had little chance to get involved this time as
it announced IPTs in New York’s morning
session on Tuesday.
Books were over US$1bn within an hour,
peaking at US$6.4bn, and the deal had been
priced by midday.
Despite the timing, there was healthy
support from global accounts, not just US
investors.
“Since everyone started working from
home, there is less division between
working hours and non-working hours than
in the past, so that might have resulted in
more credible demand from Asia,” said a
source close to the deal.
Asian investors put in sizable orders for
the 144A/Reg S offering, but in the end were
allocated less than 20% of the book. No
OFlCIALûSTATISTICSûWEREûRELEASED ûBUTû53û
investors drove the deal, with some
institutions placing US$100m-plus orders.
“If this had been a Reg S-only deal, it wouldn’t
have happened,” said one DCM banker.
On Wednesday, Chinese internet search
company Baidu sold US$1bn of SEC-
registered bonds in two tranches, in a deal
that closed about 10 times subscribed and
drew particularly strong US orders.
!û53MûlVE
YEARûûTRANCHEûWASû
priced at 99.793 to yield 3.12%, equivalent to
Treasuries plus 275bp, inside initial price
thoughts of 312bp area.
A US$400m 10-year 3.425% tranche was
priced at 99.539 to yield 3.48%, or Treasuries
plus 285bp, inside IPTs of 325bp area.
Baidu’s 2024s were seen at Treasuries plus
250bp and its 2028s at 261bp, with a fairly
mATûCURVE ûSOûTHEûNEWûISSUEûCONCESSIONûWASû
estimated at 20bp–25bp for the two
tranches.Even with that concession, Nasdaq-listed
Baidu achieved the lowest yield it had ever
paid for a 10-year tranche.
Total orders peaked at about US$12bn and
WEREûINûTHEûREGIONûOFû53BNûATûlNALû
pricing. Around half of the bonds went to US
investors, with Asia also well represented
and Europe taking a smaller amount.
/FlCIALûSTATISTICSûHADûYETûTOûBEûRELEASEDAlthough Baidu reverted to the more
traditional Asian deal execution,
announcing price talk at the start of the
Hong Kong working day and pricing at the
US close, the DCM banker said the success of
the AIA trade suggested that Yankee or
Global issuers from Asia could simply open
books in the Hong Kong afternoon.
“A 14-hour bookbuild is as anachronistic
as a seven-day roadshow,” he said. “Three
months ago seems like a different world.”
&ORûNOW û!SIANûDEALûmOWûLOOKSûLIKELYûTOûBEû
dominated by 144A offerings of high-grade
names, though bankers think some of the
region’s frequent issuers, such as South
Korean quasi-sovereigns and Japanese
names, are likely to balk at the thought of
paying new issue concessions of 25bp or
higher.
“There is something psychologically
holding Asian issuers back from pulling the
trigger,” said the DCM banker. “I expect a lot
of them to wait until late April or May to see
if things get better.”
Citigroup, Morgan Stanley, Goldman Sachs,
HSBC, Standard Chartered and Wells Fargo
were active bookrunners for the AIA trade.
Goldman Sachs and Bank of America were
bookrunners for Baidu’s SEC-registered deal.
Daniel StantonInternational Financing Review April 4 2020 67EMERGING MARKETS
China 68 Hong Kong 68 India 68 Kazakhstan 69 South Africa 69
Zambia 70 Qatar 71 Argentina 71 Colombia 72 Ecuador 73 Mexico 73“Since everyone started
working from home, there is
less division between working
hours and non-working hours
than in the past, so that might
have resulted in more credible
demand from Asia”“A 14-hour bookbuild is as
anachronistic as a seven-day
roadshow,” he said. “Three
months ago seems like a
different world”8 IFR Emerging 2327 p 67 - XX.indd 67 03 / 04 / 2020 19 : 21 : 02