By Daniel Stanton
SINGAPORE, April 3 (IFR) - Asian issuers returned to the offshore bond market after a two-week absence, but US investors are likely to be critical to the success of primary issues for months to come.
On Tuesday, insurer AIA Group (A2/A/A+) completed the first widely marketed dollr bond from Asia since March 11, followed a day later by Chinese internet giant Baidu, rated A3/A (Moody's/Fitch), with a US$1bn dual-tranche deal.
Both deals were marketed to US investors, who drove the trades and took the largest part of each offering, continuing the buying spree that saw the US high-grade market break records last month.
The success of a US$1bn 10-year deal for A3/A– (Moody's/S&P) rated insurer Aflac on Monday prompted some US investors to approach AIA about issuing, and the pan-Asian insurer sold US$1bn of 3.375% 10-year bonds at 99.706 to yield 3.410%, equivalent to Treasuries plus 275bp.
Recent high-grade issuers in the US market have been willing to pay new issue concessions of as much as 50bp–75bp to achieve chunky deal sizes, demonstrate market access and ensure they are cash-rich in case the economic downturn lasts longer than expected.
Initial price thoughts for the AIA trade were Treasuries plus 325bp area, which was around 75bp back of fair value on its existing 2029 bonds, quoted at Treasuries plus 245bp, though those are fairly illiquid. Ten-year bonds from Prudential and Met Life were seen at Treasuries plus 270bp, while Aflac's 2030s were at 280bp.
The new issue premium was seen at 20bp–25bp over a hypothetical 10-year point on AIA's curve.
The sharp decline in US Treasury yields in recent months meant that the coupon and yield were both lower than those on AIA's 10-year bonds issued last year, when it printed 3.6% bonds at 99.493 to yield 3.661%.
AIA was spun off from US insurance giant AIG following the last financial crisis and as such has a big following in the US. It has tended to focus its marketing efforts for bond sales there rather than in Asia, and Asian buyers had little chance to get involved this time as it announced IPTs in New York's morning session on Tuesday. Books were over US$1bn within an hour, peaking at US$6.4bn, and the deal had priced by midday.
Despite the timing, there was healthy support from global accounts, not just US investors.
"Since everyone started working from home, there is less division between working hours and non-working hours than in the past, so that might have resulted in more credible demand from Asia," said a source close to the deal.
Asian investors put in sizable orders for the 144A/Reg S offering, but in the end were allocated less than 20% of the book. No official statistics were released, but US investors drove the deal, with some institutions placing US$100m-plus orders.
"If this had been a Reg S-only deal, it wouldn't have happened," said one DCM banker.
BUMPER BOOK FOR BAIDU
On Wednesday, Chinese internet search company Baidu sold US$1bn of SEC-registered bonds in two tranches, in a deal that closed around 10x subscribed and drew particularly strong US orders.
A US$600m five-year 3.075% tranche priced at 99.793 to yield 3.12%, equivalent to Treasuries plus 275bp, inside initial price thoughts of 312bp area. A US$400m 10-year 3.425% tranche priced at 99.539 to yield 3.48%, or Treasuries plus 285bp, inside IPTs of 325bp area.
Baidu's outstanding 2024s were seen at Treasuries plus 250bp and its 2028s at 261bp, with a fairly flat curve, so the new issue concession was estimated at 20bp–25bp for the two tranches.
Even with that concession, Nasdaq-listed Baidu achieved the lowest yield it had ever paid for a 10-year tranche.
Total orders peaked at around US$12bn and were in the region of US$10bn at final pricing. Around half of the bonds went to US investors, with Asia also well represented and Europe taking a smaller amount. Official statistics had yet to be released.
Although Baidu reverted to the more traditional Asian deal execution, announcing price talk at the start of the Hong Kong working day and pricing at the US close, the DCM banker said the success of the AIA trade suggested that Yankee or Global issuers from Asia could simply open books in the Hong Kong afternoon.
"A 14-hour bookbuild is as anachronistic as a seven-day roadshow," he said. "Three months ago seems like a different world."
For now, Asian deal flow looks likely to be dominated by 144A offerings of high-grade names, though bankers think some of the region's frequent issuers, like Korean quasi-sovereigns and Japanese names, are likely to baulk at the thought of paying new issue concessions of 25bp or higher.
"There is something psychologically holding Asian issuers back from pulling the trigger," said the DCM banker. "I expect a lot of them to wait until late April or May to see if things get better."
Citigroup, Morgan Stanley (B&D), Goldman Sachs, HSBC, Standard Chartered and Wells Fargo were active bookrunners for the AIA trade.
Goldman Sachs and Bank of America were joint bookrunners for Baidu's SEC-registered deal, and Bank of Communications, Hong Kong branch, was co-manager.
(This article will appear in the April 4 issue of IFR Asia magazine. Reporting by Daniel Stanton; Editing by Steve Garton)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.