By Frances Yoon
HONG KONG, May 24 (IFR) - Bad-debt manager China Huarong Asset Management's newly issued US dollar bonds skidded this morning amid concerns that tight pricing and a weak market sapped demand for the US$1.9bn deal.
The deal comprised a US$300m three-year tranche that priced at Treasuries plus 135bp, a US$900m five-year at T+165bp and a US$700m 10-year at T+220bp.
The biggest tranche, due 2024, was spotted 13bp wider at T+178bp and the 2029s slid 7bp to T+227bp, said a banker on the deal. The 2022s were trading 3bp tighter.
The bonds were free to trade around 10:30am Hong Kong time, said two investors, with one saying that the timing was later the usual 8:30am-9:00am. Three bankers on the deal suggested that there were issues with allocations.
One of the bankers said some Chinese joint bookrunners ended up with more bonds that they wanted at the final price, which triggered the weakness in secondary trade.
"The problem with this deal is that it was priced too tight for such a large size," said a fourth banker. "We had a US$10bn order book so the demand was there. But the final pricing offers little to negative new issue premium."
One of the bankers saw fair value for the 2022s at around G+150bp, based on Huarong's April 2022s, and put the 2024s and 2029s 15bp and 55bp wider, respectively, based on comparable points on peer Cinda Asset Management's curve. On that basis, only the longest tranche offered any new issue premium.
Final pricing was also inside fair value calculations published by CreditSights, which saw the 2022s at T+144bp or a Z spread of 140bp, the 2024s at T+183bp/Z+180bp and 2029s at T+224bp/Z+230bp.
Two Hong Kong-based investors thought the deal was too tightly priced and decided not to participate given that there were cheaper bonds to buy in secondary trade. One of the investors also said the current backdrop was weak.
"Credit funds still see inflows, but markets are jittery," said the investor. "Market beta is not good right now beceause of issues such as the trade tensions and Huawei."
A third investor was put off by the bloated syndicate structure, which has complicated similar deals in the past.
"There were 30 bookrunners. It's one of the reasons why I didn't play."
The final order book stood at US$5.6bn including joint lead manager interest, which was not quantified.
Guidance was tightened from initial indications of Treasuries plus 165bp area, 190bp area and 240bp area, respectively.
On the three-year, books grew over US$2bn from 45 investors. Asia was allocated 95% and the rest went to EMEA. Banks took 68%, asset managers 26% and private banks and others 6%.
The 2024s drew over US$2.2bn from 50 accounts. Asia and EMEA accounted for 80% and 20% of the deal. Banks took 62% of the deal, asset managers 37%, and private banks and others 1%.
The 10-year notes attracted US$1.4bn from 50 buyers. Asia and EMEA had 82% and 18% of the notes. Asset managers took 56%, banks 33%, private banks and others 1% and insurers 10%.
The latest deal follows a rally in Huarong's senior curve this year. Huarong's 5.5% January 2025s are trading near their tightest since October 2017 at 4%, or a cash price bid of 107.2, according to Tradeweb. The 5% November 2025s, 4.875% November 2026s and 5.5% April 2047s are also trading at high cash prices of 104.8, 103.2 and 105.4, respectively.
The Reg S notes issue, which have expected ratings of Baa1/A (Moody's/Fitch), will be issued off Huarong's US$2.9bn medium-term note programme. Huarong is rated A3/BBB+/A.
Huarong Finance 2019 is the issuer and China Huarong International Holdings is guarantor. The notes will also have the benefit of a keepwell deed and a deed of equity interest purchase, investment and liquidity support undertaking provided by the Hong Kong-listed state-owned parent company.
Proceeds will be used to repay outstanding offshore notes when they come due.
ANZ, Bank of China, Bank of Communications, China Minsheng Banking Corp, Credit Suisse, Goldman Sachs, HRIF, HSBC, ICBC (Asia), Mizuho Securities and Standard Chartered Bank were joint global coordinators.
They were also joint lead managers and joint bookrunners with ABC International, Bank of America Merrill Lynch, Bison Bank, Cathay United Bank, CCB International, China Citic Bank International, China International Capital Corp, China Merchants Securities (HK), Citigroup, CLSA, CMB Wing Lung Bank, CTBC Bank, DBS Bank, Deutsche Bank, ICBC International, Industrial Bank Hong Kong branch, Nomura, SPDB International and UOB.
(Reporting by Frances Yoon; Editing by Steve Garton)
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