Friday, 14 December 2018

Savvy personified

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It was a deal that drew criticisms as well as praise, but Hutchison Whampoa undeniably fulfilled its target when it issued its US$2bn perpetual bond in October. The deal squeezed through just before the door slammed shut on the market and performed poorly in the secondary, but it generated more interest than similar deals at the same time, and maintained the group’s desired debt to equity ratio. Prakash Chakravarti reports.

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If there is one name that everyone agrees is one of the savviest borrowers from Asia – if not globally – it is Hong Kong blue chip Hutchison Whampoa. The conglomerate has long kept Asian bankers on their toes with its smart and opportunistic funding exercises. It is practically a role model for Asian borrowers in the capital markets.

Among the debt fundraisings that Hutch indulged in during the past 12 months, its US$2bn perpetual bond in late October last year was by far the most eye-catching. Hutch was not the first Asian company to raise funds through a perp – it’s subsidiary, Cheung Kong International, became the first from the region in 13 years when in late September it borrowed US$1bn through a perp non-call five offering.

CKI’s perp was intended to shore up its balance sheet and maintain its ratings after it announced the acquisition of EDF’s UK electricity assets. Because Hutch owns 84.6% of CKI, any impact on the latter’s financials could also have a bearing on Hutch and its credit profile.

Hutch issued its perp “to maintain our debt to equity ratio last year, when CKI decided to acquire EDF in the UK, as the credit rating agencies view perpetual bonds as quasi-equity,” said Kwan Cheung, group chief financial officer at Hutch. “Hutchison’s strategy is to grow organically or by acquisitions when the financials make sense, and meet our investment benchmarks, but at same time ensuring that we maintain a strong credit profile and rating.”

Hutch executed its perp quickly, pricing its transaction just two days after it awarded a sole mandate to Goldman Sachs. The deal priced in line with guidance at 6% garnering an order book of US$4.25bn from 190 accounts split evenly between real money accounts and retail investors, and spread out geographically.

In comparison, CKI’s transaction a month earlier saw demand from 167 accounts, 87% of which were Asian, with retail taking up 55% of the deal. CKI drew in an order book of US$5.2bn on a yield of 6.625%. And, Singapore-listed commodities trader Noble Group’s US$350m perpetual non-call five deal, which came a week after Hutch, garnered only US$900m from 94 accounts, despite a yield of 8.50%.

Hutch clearly got the timing for this deal spot on. The dismal performance in the secondary markets for all three perps ensured that the re-opening of the perp market was short-lived. Asia did not see another G3 currency perp transaction until early April 2011.

Although Hutch also took a beating in secondary markets, it was the only one among the trio to see its perps trade above the par issue price. In early June 2011, they were trading at around 103. At that time CKI and Noble were languishing well below their par issue prices at 93.125 and 96.50 respectively.

“The issue was completed at a reasonable price for its size and at the time when it was required,” said Cheung, affirming satisfaction at the outcome of the deal.

“Hutch enjoys a pre-eminent position in the corporate world in terms of its ability to access the markets with great results,” said one Hong Kong-based DCM banker. “Mandating just one bank on the perp was not the right thing to do,” he added, pointing to the secondary market performance.

“We are happy with the outcome of the issue,” responded Cheung. “The bond performed within expectations in the secondary market following its issue, and I believe investors were satisfied overall with the way the issue was structured and priced. Obviously, there are many factors affecting secondary trading in any securities and we cannot, and do not, seek to manage secondary market performance.”

The perp was Hutch’s first G3 currency bond since a €1.75bn seven-year bond in November 2009.

In the loan markets, where Hutch is a frequent borrower, its subsidiaries kept lenders occupied with retail and manufacturing arm, AS Watson, borrowing €600m through a five-year loan paying an all-in of 90bp over Euribor in December. HPH Trust, a spin-off of Hutch’s port assets, raised US$3bn through a three-year loan paying an all-in of 150bp over Libor in March.

The loan offered the juiciest pricing from the Hutch group and came at a hefty premium to the average 89.2bp all-in that Hutch entities paid for their three-year borrowings since 2005, according to Thomson Reuters data.

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