China National Chemical Corp (or ChemChina) pushed the boundaries of the international capital markets in March with Asia’s biggest Reg S-only bond issue, raising US$6.4bn across six tranches – five in US dollars and a €1.2bn long four-year in euros.
The first jumbo trade from Asia since markets weakened in February was also a record from China’s corporate sector, and tied with Sinopec’s 2015 deal as the largest international bond from a Chinese state-owned enterprise.
Proceeds were used to refinance bridge loans used to acquire Swiss seeds and pesticide maker Syngenta for US$43bn, showing that the bond market was a viable way to fund M&A and giving other Asian issuers the confidence to follow later in the year.
The US dollar portions comprised a US$1bn 4.125% 2021 priced at Treasuries plus 182.5bp, a US$1.3bn 4.625% 2023 at plus 202.5bp, a US$800m 4.875% 2025 at plus 220bp, a US$1.75bn 5.125% 2028 at plus 235bp – all priced 15.0bp–17.5bp inside guidance – and a US$100m 2048 at 5.5% in response to reverse enquiries. The euro tranche was priced 15bp inside initial guidance at mid-swaps plus 150bp.
A 20bp–25bp premium against its secondary curve gave investors the confidence to participate and ensured good secondary performance. At the time, Asian high-grade issuers were still grappling with the new market reality, having become accustomed to printing flat to or inside their curves for the past two years, but such premiums soon became standard practice.
The deal came in March, when investors and issuers were still getting to grips with new market conditions for emerging market credits. Even with an established state-owned name such as ChemChina, there was no guarantee that investors would show enough interest to print the size it was targeting.
Since the start of the year, China had begun discouraging some companies from making too many large overseas acquisitions, and while ChemChina had emerged as a national champion in the chemical sector, there was some wariness over whether the Syngenta acquisition, the largest ever by a Chinese company, might yet be affected.
On top of that, Syngenta had postponed its own US dollar offering the previous September, creating an overhang as investors waited to see if it would return for its own jumbo trade to help with the acquisition funding. In the end, that trade came the month after ChemChina had settled investors’ concerns and shown what was possible in the Reg S market.
Bank of America Merrill Lynch, Barclays, BNP Paribas, BOC International, China Citic Bank International, Commerzbank, Credit Agricole, Credit Suisse, First Abu Dhabi Bank, HSBC, Industrial Bank Hong Kong branch, Morgan Stanley, MUFG, Natixis, Rabobank, Banco Santander, Societe Generale and UniCredit were joint global coordinators and joint bookrunners for the bond offering.