premium, according to the
banker. The premium was hard
to estimate for the 30-year
tranche, given the illiquidity of
Sinopec’s paper at the long end,
he said.
LOW-BETA NAMES
A Hong Kong-based fund
manager from an insurance
company said low-beta names
such as Sinopec were relatively
safe bets in a volatile market.
“Within Asia, Chinese IG
credits were relatively stable
compared with those of
Indonesia and India. For central
SOE names like Sinopec,
there is not even the slightest
doubt about their credit
fundamentals,” he said.
CGNPC also printed its dollar
bonds with little premium,
although it had to make a
concession for its new euro
bonds.
The state-owned nuclear
power company priced a
US$500m 3.875% five-year at
Treasuries plus 120bp, 25bp
tighter than initial 145bp
area guidance. It also added a
US$100m 30-year tranche at par
to yield 4.8%, or Treasuries plus
173.4bp, on the back of reverse
enquiries.
A €500m (US$581m) 2.00%
seven-year euro Green tranche
was priced at 99.696 to yield
2.04%, or mid-swaps plus 150bp,
slightly tighter than initial
155bp area guidance.
“Demand for the five-year
dollar tranche was solid and
no new issue concession has
been given despite a volatile
market,” the banker said.
Demand for the euro tranche
was lacklustre, despite offering
a new issue concession of
around 15bp, as the weak euro
affected investor appetite.
Final orders for the five-
year dollar tranche were over
US$1.75bn while the euro
tranche drew final orders of
over €750m. Order details for
the 30-year dollar tranche were
not made available. (See China
Debt capital markets.)BOC reprices
onshore T2 bonds
Bonds Lender takes step towards market-led pricing for
subordinated notesBY INA ZHOUBANK OF CHINA has upended China’s
onshore Tier 2 market with
its latest offering, breaking
with the long-standing pricing
conventions that China’s big four
banks have relied on for their
subordinated debt.
Unusually in the domestic
bond market, where most
bonds are priced in nominal
yield terms rather than against
a benchmark, the notes were
marketed at a spread over China
Development Bank’s bonds.
BOC sold Rmb40bn
(US$5.85bn) of 10-year non-call
five notes at 90bp over the yield
of CDB’s five-year notes, or a
yield of 4.86%. The indicative
price range was a spread of
60bp–120bp.
The yield – and implied spread- was significantly higher than
for the T2 notes several of the
big four have issued over the
past year, all of which carried the
same 4.45% yield regardless of
issue date or size.
For instance, when BOC sold
Rmb30bn 10-year non-call five
T2 notes in September 2017, the
nominal 4.45% yield represented
a 20bp spread over CDB’s
comparable bonds. In contrast,
when Industrial and Commercial
Bank of China priced Rmb44bn
T2 notes two months later, the
4.45% yield was 18bp inside CDB.
BOC’s latest deal offers “a
much fairer pricing that reflects
the current market sentiment
and investor appetite,” said a
syndicate banker away from the
deal. “The issuer did not squeeze
the pricing deliberately as the
big four used to do.”
According to BOC, over
100 institutions placed orders
during bookbuilding. Eventually,
the offering, which was also
available to offshore investors via
the Bond Connect link, was 1.
times covered.
It has long been an open
secret in China’s onshore market
that the big four banks cross-held
each other’s T2 notes and agreed
on identical pricing.
To avoid a capital charge
on holding each others’ T
paper, banks used to buy them
via off-balance-sheet wealth
management products, which
are of fairly short duration.
However, as regulatory
scrutiny of off-balance-sheet
activities has intensified, many
banks had to bring WMPs onto
their books, constraining their
capital.
The China Banking
and Insurance Regulatory
Commission released draft rules
on commercial banks’ WMPs
in July, saying that these should
be managed based on their
net value and that maturity
mismatches should be banned.
“The traditional demand for
T2 has declined as the growth of
WMPs slowed and the 10-year
non-call five format became too
long for WMPs,” said another
syndicate banker familiar with
BOC’s deal.
The banker said in order to
diversify the investor base for T
notes, lenders had to price the
notes in a way that respected
market dynamics.
He and some colleagues
expected the other big three to
follow suit and adopt market-
oriented pricing as the supply of
T2 paper is set to rise.
ICBC last month announced
that it planned to raise up to
Rmb110bn-equivalent from
offerings of Tier 2 capital
instruments. China Construction
Bank is also heard to be planning
a jumbo T2 offering having
last sold T2 securities in 2015,
according to market sources.
“BOC led the change in the
segment of T2 notes that is being
encouraged by regulators,” said
the banker. For daily news stories
visit http://www.ifrasia.comtarget following commitments
from 23 lenders in general
syndication. The margins
range from 105bp to 225bp
and are tied to a ratings grid.
At the current ratings of Baa2/
BBB- (Moody’s/S&P), the initial
margin is 122.5bp over BBSY.
LOAN ADVANTAGES
Market participants said the
secured borrowing would offer
cheaper financings compared
with an unsecured bond.
Qantas has not tapped the
bond markets in two years
since September 2016 when it
priced a A$425m seven and 10-
year bond at coupons of 4.40%
and 4.75%, respectively. That
was the airline’s only bond
after regaining its investment-
grade status from Moody’s
and S&P in February 2016 and
November 2015 respectively.
In May, competitor Virgin
Australia Holdings, the
country’s second-largest airline,
raised A$150m through an
8.25% five-year non-call three
medium-term note in what was
Australia’s first low Single B
rated offering.
Both airlines recorded strong
financials for the year ending
June 30 2018, with Qantas
posting a rise in its underlying
pre-tax profit to A$1.60bn,
compared with A$1.40bn a
year earlier. Virgin clocked
A$109.6m for the year ended
June 30, compared with a
A$3.7m loss a year earlier.
Qantas has A$1.375bn
of bonds outstanding with
staggered maturities from 2020
to 2026 and US$2.42bn in loans
coming due from 2019 to 2025.
In a report published on
August 23, Moody’s noted
that the airline will continue
to maintain strong liquidity,
supported by cash balances
of A$1.7bn, undrawn bank
facilities of A$1bn, a significant
unencumbered asset base –
around 61% of its group fleet
valued at around US$4bn – and
strong operating cashflow.
The Qantas Group includes
the full-service Qantas and low-
cost Jetstar carriers.