China offshore AT1 09 HNA bond auction flops 10 Uncertain Future 11
on a P/E multiple than a
tech company that only has
revenues,” the first ECM banker
said.
CHINA PREMIUM
Investors generally reckon the
valuation is reasonable at the
low end of the price range.
The company is selling
shares at a 2020 EV/Ebitda of
15.5–18.2 and a 2020 P/E of
28.5–33.5. Peer China Resources
Beer trades at a 2020 EV/
Ebitda of 17.6 and 2020 P/E of
34.6, while Tsingtao Brewery
changes hands at 15 and 34,
respectively.
“The China business of
Budweiser probably deserves an
at-par or premium valuation to
CR Beer and Tsingtao. But don’t
forget the listing also includes
non-China businesses which
have slower growth,” said a
fund manager.
Budweiser produces and
sells more than 50 beer brands
including Budweiser, Skol and
Corona. Its principal markets
in Asia-Pacific are China,
Australia, South Korea, India
and Vietnam.
The company posted a net
profit of US$351m for the first
three months of 2019, up 1.4%
year on year. Its 2018 net profit
was US$1.4bn, up 31% from
2017.
In the first quarter of 2019,
the normalised Ebitda for
Budweiser’s Asia Pacific West
business, which is mostly
China, saw an organic growth
rate of 23% while that of Asia
Pacific East was only 2.6%.
Singh at Aequitas Research
reckons at the low end of the
range the offering implies an
upside of 16%–26% based on a
forecast market capitalisation
of US$63bn–$69bn.
Momentum is quietly
building.
“Books continue to grow
steadily including sizable
roadshow conversion. We
continue to receive positive
feedback from long-only
institutions and hedge fundsalike,” said another ECM
banker with knowledge of the
transaction.DEBT REDUCTION
AB InBev, the world’s largest
brewer, has said the listing will
create an APAC consumer goods
champion and provide a vehicle
for potential mergers and
acquisitions in the region.
It is also using the IPO to
help pay down a debt stack that
totals more than US$100bn,
including some US$60bn in
outstanding bonds, according to
Refinitiv data.
AB InBev, rated Baa1/A–/BBB,
has been aggressively terming
out its debt, using a six-part
US$15.5bn bond issue in January
with maturities up to 40 years
to tender US$16.5bn of bonds
maturing between 2021-2026.
However, secondary bond
spreads did not react overly
positively to the news of the
IPO in part because there is fear
the company could turn around
and use these funds for newM&A, one investor said.
The beer maker’s 5.45%
2039 bond was its most active
on the week, moving just
3bp tighter on the news to
trade hands at 143bp over
Treasuries.
The company declined
to comment on the use of
proceeds from the IPO.
Bookbuilding for the Hong
Kong IPO started last Tuesday
and pricing is scheduled for
July 11. Shares are due to start
trading on July 19.
The deal offers an
underwriting fee of 1% and an
incentive fee of up to 0.5%.
The company plans to use
the proceeds to repay loans due
to AB InBev subsidiaries as a
result of its reorganisation.
JP Morgan and Morgan Stanley
are joint sponsors. They are
also global coordinators and
bookrunners with Bank of
America Merrill Lynch and Deutsche
Bank. The other bookrunners
are BNP Paribas, CICC, Citigroup
and HSBC. for the development of the
territory’s financial market
and the diversification of its
economy.
Becky Liu, China macro
strategist at StanChart, said
in a note on June 25 that the
deal could mark the beginning
of regular CNH bond issuance
by the Chinese government in
Macau, although the size and
frequency will likely be much
smaller than Beijing’s sales of
Dim Sum bonds in Hong Kong.
The Macau CNH bonds have
been dubbed “Lotus bonds” to
distinguish them from Dim
Sum bonds.
“We felt the MoF is
increasing its presence in the
offshore market this year. Apart
from Macau, it might also tap
the European market as Europe
has been involved a lot in Belt
and Road Initiative projects,”
said a banker on the MOF’s
Macau offering.
The expanded supply could
help support the development
of the CNH by establishing
a funding benchmark and
increasing the availability
of risk-free investible assets
offshore, said Liu.
In its previous CNH bondissues to institutional investors
in Hong Kong, the MoF has
used the bond tendering
platform of the Hong Kong
Monetary Authority’s
Central Moneymarkets Unit.
In Macau, it conducted a
bookbuilding exercise as there
is no equivalent to the CMU
infrastructure.EXPANDING FOOTPRINT
There is no specific timeline
for CNH bond issuance,
according to a MoF official,
who said only that China is
willing to strengthen financial
cooperation with parties
involved in BRI projects.
China has increased its
renminbi bond issuance
offshore. In addition to the
MoF’s plan for annual CNH
government bond issuance
in Hong Kong starting in
November last year, the
People’s Bank of China has
regularly issued CNH bills in
Hong Kong through the CMU.
In the first half of this
year, the PBoC sold Rmb70bn
of CNH bills in Hong Kong,
boosting overall CNH
issuance, including bonds
and certificates of deposit, to
Rmb166bn, a 42% year-on-year
increase, according to an HSBC
report.
BOC Macau branch was the
sole global coordinator on boththe institutional and retail
tranches of the MoF’s offering
in Macau. It was also joint lead
manager and joint bookrunner
with BoCom Macau branch,
Banco Nacional Ultramarino,
China Construction Bank Macau
branch, ICBC (Macau), HSBC
Macau branch, Luso International
Bank, Agricultural Bank of China
Macao branch, China Guangfa
Bank Macau branch, StanChart
HK, Tai Fung Bank, Macau Chinese
Bank and Well Link Bank on the
institutional tranche.
For the institutional portion,
67% of the bonds went to
Macau, 28.5% to Hong Kong,
and 4.5% to others. By investor
type, 85% went to banks, 9% to
pension funds, 4% to central
banks, 1% to asset managers
and fund managers, and 1% to
insurers and others.
BOC Macau branch, BoCom
Macau branch and BNU are
joint lead managers and joint
bookrunners on the retail
tranche. For daily news stories
visit http://www.ifrasia.com“To hold a roadshow in
Europe doesn’t mean
that the MoF is looking
to issue euro bonds. I
think for currency, it is
flexible.”