Juicy offshore bond yield is no panacea

Yields on dollar bonds from Chinese issuers have jumped this year, but investors don’t appear to be rising to the bait. A rethink of borrowers’ fundraising strategies should be on the cards.

  • By Addison Gong
  • 09 Oct 2018
Email a colleague
Request a PDF

Two Chinese companies, Zhenro Properties Group and Maoye International Holdings, broke records last month, albeit for the wrong reasons. Zhenro paid a hefty yield of 13.7% for a $280m 12.5% 2.25 year bond — the highest level among Asian dollar issuers so far in 2018. Maoye’s par-priced 13.25% two year non-put one note, priced the same day as Zhenro, came second.

What’s unsettling is that neither deal, despite the returns on offer, was well received by investors. Zhenro managed to scrounge an order book that covered its deal just twice, while retail chain operator Maoye only raised $150m, despite having a $300m 7% bond maturing later this month.

More recently, Cifi Holdings Group Co, a well-liked Chinese property developer that is a frequent debt issuer, paid a handsome 60bp new issue premium to use up its remaining $300m fundraising quota for 2018. Despite price guidance unchanged from the 8.625% area, the deal still suffered from slow bookbuilding, with a modest order book size of just around $425m. In comparison, Cifi’s last issuance, a $500m 6.875% 2021 in April, summoned an over $4.25bn book.

There are other examples too. State-owned Tewoo Group tried to attract accounts to an 8.25% offering, but ended up pulling its $200m-$300m two year trade. That was a big blow considering that the company has issued notes in the low-3% over the past three years. Tewoo has a $500m 3.7% bond due on October 17.

What all this shows is that the bond market has become less and less accommodating. Paying up, which used to reel in a horde of investors, simply isn't enough anymore.

Issuers need to think seriously about whether heading to the offshore market is in their best interests.

Sure, international debt issuance from Chinese credits has gone from strength to strength over the past few years. But issuers need to get away from the follow-the-herd mentality — especially if the hefty funding costs for dollar bonds are simply unsustainable in the longer run. 

There is no disputing the fact that tapping the international debt market has its advantages, be it diversification, the cost of issuing in certain cases, or sometimes easier regulatory requirements compared to the domestic market. But rather than pay teeth-grinding premiums on dollar bonds, monitoring the market for the right window and, more importantly, choosing the most suitable funding avenue, are critical for borrowers.

Other channels should not be overlooked, such as private placements and bank loans. The onshore bond market too is still open for the right names, with liquidity deep and pricing potentially attractive.

If market signals are right, debt issuers are likely to face a bumpy ride over the rest of the year. But this provides them with a perfect opportunity to take another look at their fundraising strategies and go back to the basics. 

  • By Addison Gong
  • 09 Oct 2018

Panda Bonds Top Arrangers

Rank Arranger Share % by Volume
1 China Merchants Securities Co 14.44
2 Industrial and Commercial Bank of China (ICBC) 11.65
3 Bank of China (BOC) 10.33
4 CITIC Securities 8.41
5 Agricultural Bank of China (ABC) 7.17

Bookrunners of Asia-Pac (ex-Japan) ECM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Goldman Sachs 1,075.14 2 13.79%
2 CITIC Securities 952.42 4 12.22%
3 Bank of China 754.84 3 9.68%
4 China International Capital Corp Ltd 721.75 3 9.26%
5 Guotai Junan Securities Co Ltd 668.93 3 8.58%

Bookrunners of Asia Pacific (ex-Japan) G3 DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 2,199.70 15 11.32%
2 Citi 1,809.79 16 9.31%
3 JPMorgan 1,192.62 8 6.14%
4 UBS 1,022.45 9 5.26%
5 Standard Chartered Bank 1,009.43 7 5.19%

Asian polls & awards

  • GlobalCapital Asia capital markets awards 2018: Investment banks

    In the fourth and final instalment of GlobalCapital Asia’s capital markets awards announcements, find out the Best Asian Investment Bank and the Best Investment Bank in the region for 2018.

  • GlobalCapital Asia capital markets awards 2018: Bonds

    In part three of our results announcements, we reveal the winning bond deals across a variety of categories. In addition, we also name the Best G3 Bond House, Best Local Currency Bond House, Best High Yield Bond House and the debut winner of the Best House for SRI Financing.

  • GlobalCapital Asia capital markets awards 2018: Equities

    In part two of our results announcements, we reveal the winning equity deals and banks, including the Best Follow-on/Accelerated Bookbuild, Best Equity-Linked Deal, Best IPO, Best ECM Deal and Best ECM House.

  • GlobalCapital Asia capital markets awards 2018: Loans

    GlobalCapital Asia has spent the last two months talking to banks and their clients in a bid to determine the most impressive capital markets transactions and advisers across Asia ex-Japan in 2018. We are pleased to begin our awards announcements in the loan market.

  • GlobalRMB awards: Most impressive issuers, best law firm

    In this third part of the GlobalRMB awards, we present our reasons for choosing the best issuers in the FIG, corporate and SSA categories — and praise the strong performance of one well-known foreign law firm.