BONDS: Samsung sets low-coupon record with 5-yr dollar bond

2 min read
Asia

Source: Reuters/Albert Gea

Visitors walks past a Samsung Galaxy tablet advertisement during the Mobile World Congress in Barcelona

Samsung tapped overwhelming demand from US high-grade investors to print the Reg S/144a bond at 99.634 to yield 1.829% off a 1.75% coupon. That was a very tight 80bp over US Treasuries, also one of the tightest-ever spreads an Asian corporate issuer had achieved and some 20bp inside initial talk of 100bp over US Treasuries. Official price talk had come out at 90bp over.

Yet, while the trade was super tight for Asian standards, it seemed like a pretty good deal for US investment-grade fund managers, which took the majority of the bonds.

Leads Bank of America Merrill Lynch, Citigroup, Goldman Sachs, JP Morgan and Samsung Securities were driving accounts to look at the likes of IBM, Texas Instruments, Oracle, Dell and Cisco for price discovery. Using those super blue chips as a gauge, Samsung did look attractive at 80bp over Treasuries, versus the 35bp–70bp spread on five-year bonds for most of those companies.

Plus, Samsung has scarcity value and allows for diversification away from the US. The company’s last visit to the dollar market had been 15 years ago.

While, at first glance, it might have seemed a stretch to compare Samsung to the likes of IBM, that is probably the best that can be done. Samsung has a market cap in the US$170bn area and is rated A1/A+/A, much like its global peers, and strong brand awareness.

It was no wonder, then, that the deal attracted US$4.4bn in orders from 160 accounts, 64.25% of them high-grade funds. US accounts – responsible for 90.6% of the orders – were so important to the deal that the bonds will only be made free-to-trade when the US market opens later on Tuesday.

If fund managers were the big buyers, the usual suspects completed the line-up: insurers made up 13.89% of the book and banks with 10.6%. Hedge funds came in with 7.46% and were given some allocation as leads wanted to insure some free-float given that the vast majority of bidders were buy-and-hold investors.

With so many big boys in the books, it was no surprise that some of the biggest orders were in the US$250m area. One banker in the syndicate in Asia said he was glad, therefore, that the allocation was all done in US hours, as having to undercut some of the big names that were in the books “would have been a nightmare”.

Visitors walks past a Samsung Galaxy tablet advertisement during the Mobile World Congress in Barcel