Sunday, 21 October 2018

Emerging Asia Bond: CNOOC’s US$2bn-equivalent dual tranche bond

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Euro gusher

In a year when Chinese companies accounted for over 30% of all international bonds sold in Asia, China National Offshore Oil Corporation stood out as the first PRC issuer to win over investors in the euro market.

The euro tranche of CNOOC’s US$2bn-equivalent offering drew particular attention for being the first euro-denominated benchmark from any Chinese issuer, setting a template that others were quick to follow.

Its offering priced on September 26 in a resurgent credit market, coming about a week after the US Federal Reserve sprang a surprise in deciding to hold off from reducing its quantitative-easing programme.

Although CNOOC subsidiaries had previously issued overseas debt, the offering was also the first to come with a full guarantee from the group’s mainland parent. That ensured the bond was the first from a Chinese state-owned enterprise to be eligible for JP Morgan’s Emerging Market Bond Index, helping drive tighter pricing.

CNOOC, rated Aa3/AA–, priced US$1.3bn of 10-year 144A/Reg S bonds with a 4.5% coupon at par to yield 185bp over US Treasuries, well inside initial guidance of 210bp over Treasuries.

At the same time, the company priced a €500m seven-year Reg S bond to yield 115bp above mid-swaps, again a lot tighter than initial price talk in the area of 140bp. The lack of comparables for the first of its kind euro bond made it difficult to come up with a fair value. Yet investors in Europe did not hesitate to buy the bonds from China’s top offshore oil explorer.

Both tranches attracted huge order books, which proved resilient even as price levels on the bonds tightened over comparable securities. The dollar bonds drew orders of US$7.8bn, while the euro paper pulled in orders of €3.6bn.

The offering also came with an unusual execution strategy, with the dollar tranche announced in the morning during Asian hours and the euro portion unveiled later, when London markets opened.

“The 24-hour around-the-clock parallel bookbuilding for the US dollar and euro tranches spanned Asia, Europe and North America, which proved highly successful and covered the most locations in the shortest period of time,” said Paul Au, head of Asian debt syndicate at UBS, one of the global co-ordinators on the offering, alongside Bank of China, Goldman Sachs and JP Morgan.

The same banks were joint bookrunners on the dollar tranche – alongside ICBC International, CCB International, ABC International, BoCom International. Barclays, Citigroup, Credit Suisse and HSBC joined as bookrunners on the euro tranche.

Proceeds went towards the financing of CNOOC’s acquisition of the Queensland Curtis LNG project in Australia.

A few weeks after CNOOC’s offering, fellow PRC oil major Sinopec Group Overseas Development sold a US$2.75bn multi-tranche bond in US dollars and euros. The move was a sign that CNOOC had uncovered a fundraising strategy worth emulating.

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