Fosun International’s €400m (US$447m) bond issue in late October was the first public offering from a Chinese high-yield issuer in the euro market, setting an example for others at a time when China’s private sector is strengthening ties with Europe.
The low nominal coupon of euro currency bonds is one of the attractions for issuers, but the acquisitive Fosun also has funding needs in the currency. Fosun has businesses covering finance, leisure and health, with European investments including France-headquartered package holiday operator Club Med, English Premier League club Wolverhampton Wanderers and a stake in Portuguese bank BCP.
The euro market is still relatively new for Chinese borrowers, and issuance in the market has been concentrated on investment-grade names, such as banks, financial institutions and central state-owned enterprises. Just a few days after Fosun’s deal, China issued its first euro sovereign bonds in 15 years with a €4bn triple-tranche deal, but before that there was no true benchmark for Chinese issuers in the euro market.
Fosun’s deal, which was enlarged from an initial target of at least €300m on robust demand, showed that there is a hungry investor base in Europe for the right credits.
Initial price thoughts for the 3.5-year bonds started at the 4.875% area, before guidance tightened to 4.500%–4.625%. By the time the final yield of 4.35% was announced, books were around €2.5bn.
The Hong Kong-listed Chinese conglomerate overcame fears that it would need to rely only on Chinese buyers, finding ample interest from Europe. Offshore Chinese investors often dominate allocations and drive pricing on Reg S-only US dollar bonds, but those funds have far fewer holdings in euros.
While there was demand from some offshore Chinese institutions, European real-money investors were also active participants.
Final orders were over €2.3bn from more than 200 accounts, with investors from Continental Europe taking 47%, the UK 24%, Hong Kong 21%, Singapore 6% and Taiwan 2%. Asset managers and insurers booked a combined 82%, and banks and private banks 18%.
The Reg S notes, issued through subsidiary Fortune Star (BVI) and with a guarantee from Fosun, are rated Ba2/BB (Moody’s/S&P).
The bonds gained in secondary and were bid at a range of 101–102 in mid-November.
Fosun was thought to have paid 60bp–70bp over its dollar curve, but that was modest as some Chinese SOEs have paid 100bp more to print in euros. It was expected that Fosun would find euros slightly more expensive than dollar bonds, but given the scale of its businesses in Europe it made sense for it to start issuing in the currency.
Credit Suisse, Deutsche Bank, Fosun Hani, HSBC, Natixis, Standard Chartered and UniCredit were bookrunners and joint lead managers.