By Carol Chan
HONG KONG, Oct 13 (IFR) - Strong support from high-quality investors including sovereign wealth funds allowed Haier Group to print what is thought to be the lowest coupon for an unrated perpetual notes offering by a Chinese issuer.
The Chinese consumer electronics and household appliances maker yesterday priced US$1bn senior perpetual non-call five securities at par to yield 3.875%, the tight end of final guidance of 3.875%-4.00%, and 50bp below initial guidance in the 4.375% area.
Although the sharp cut in price guidance caused significant order attrition, final orders of the unrated Reg S issue still stood at US$3bn across 141 accounts. Ahead of the release of final guidance, orders were at one point in excess of US$5bn.
"The magnitude of orders contraction was quite significant, but it was not at an excessive level," a banker from a Chinese bank on the deal said.
"Indeed, the strong support from high-quality investors has allowed the company to price below the 4% psychological barrier," the banker said.
Asia took 90% of the bonds and EMEA 10%. In terms of investor types, sovereign wealth funds and fund managers bought a combined 87%, banks took 8%, private banks and other investors took the rest.
According to bankers, sovereign wealth funds, said to include China Investment Corp and Singapore's GIC, were allocated more than half of the combined 87% bought by sovereign wealth funds and fund managers. Such a big allocation to sovereign wealth funds is rare in Chinese offshore bond deals.
"Supply of high-quality non-SOE Chinese credits was not much, while the yield of big SOEs were already trading at very tight levels, so Haier's notes have provided some premium to investors," the banker said.
The final pricing was viewed as tight by some investors, though. "Some of our clients saw fair value at 3.9%-4.0% and had withdrawn orders because of the tight pricing," a bond salesperson said.
Citigroup, which views Haier as a weak-BBB credit, saw fair value of Haier's notes at around 4.1%, after referencing tech and manufacturing credits like Lenovo and Weichai Power, as well as other perpetual notes issued by other Chinese companies like Overseas Chinese Town.
Haier's notes traded underwater initially, bid at 99.875 when trading opened, but managed to rebound to 100.00/100.125 on late Friday morning, according to a trader.
The notes were issued in the name of indirectly held subsidiary Well Hope Development, with Haier as guarantor.
If the notes are not called after five years, the distribution rate will reset to the original spread of 192.7bp over five-year Treasuries and step up by 500bp.
Haier's products are sold in over 100 countries. The Qingdao, eastern Shandong province-based company was named by Euromonitor International as the top selling household appliances brand in the world in terms of total global retail volume for eight consecutive years from 2009 to 2016.
Proceeds from the bond offering will be used for debt refinancing and general corporate purposes. Another banker on the deal said a major part of the proceeds would be used to refinance the debt related to the acquisition of General Electric's appliance business.
Bank of China, BNP Paribas and DBS Bank were joint global coordinators on the transaction. The three were also joint bookrunners and joint lead managers with BoCom HK branch, China Construction Bank, HSBC, ICBC, Industrial Bank'sHong Kong branch, UBS and Zhongtai International.