Despite a slow week in Asian debt markets, Samsung Electronics was able to pull off a US$1 billion five-year bond deal priced at only 80 basis points (bp) above Treasuries. Initial price expectations were being discussed at 100bp above Treasuries – meaning Samsung priced even tighter – and the deal still garnered a US$4 billion order book.
And although the deal came from an Asian issuer, it could not have been more American in nature. Samsung used its US-based subsidiary, Samsung Electronics America, to issue the bond and the geographic breakdown of investors told the story. Only 6% of the deal was bought by Asian investors and Europeans took 4%. North America scooped up the lion’s share: 90% of the transaction.
The deal priced on April 3, in a quiet week for Asian investors due to public holidays in Hong Kong and China on April 4 for the Qing Ming Festival and the Easter break beginning on April 6. And so assured of success was Samsung that it remained undeterred despite Temasek-linked Neptune Orient Lines calling off its Singapore dollar perpetual bond just the week before.
The underwriting syndicate read as a who’s who of American banks – Bank of America-Merrill Lynch, Citi, Goldman Sachs and J.P. Morgan – along with the Samsung chaebol’s financial arm, Samsung Securities. This ensured the strongest possible American distribution for Samsung, which is rated ‘A1’ by Moody’s and ‘A’ by Standard & Poor’s.
And while South Korea’s sovereign debt is rated the same, its benchmark 5-year bond was yielding 3.72% in secondary markets as Asiamoney PLUS went to press, according to Bloomberg data. This represents a 267 basis point (bp) spread over Treasuries. Samsung Electronics priced at almost 190bp inside that.
A banker cited by sister publication Euroweek noted that the deal was too tight for Asian investors who could easily have bought into Singapore Telecommunications’ ‘AA’ rated five year bonds – the issuer is rated ‘Aa2’ by Moody’s, two notches above Samsung - at 135bp over Treasuries.
But who needs Asian investors when you can price that tightly all thanks to your name?
The lesson here for Samsung’s Asian peers is that they too should aim to compete in the US market, which is still swimming in liquidity from the US Federal Reserve and still facing historically rock bottom yields on Treasury debt.
But few Asian issuers have the same global profile as Samsung Electronics, which despite not having come to public US dollar bond markets since 1997 has been selling its smartphones and televisions into the US for years.
Tech-space competitors like China’s Huawei and Taiwan’s HTC who have been building their profile overseas can hope to emulate Samsung in years to come. Hyundai Motor Group should be able to do the same thing: its Hyundai and Kia brands sold over 127,000 units in the US last month, accounting for almost around 9% of total US car sales.
Carmakers are already increasing headcounts in the US to keep up with the burgeoning auto sales and as the economic recovery gathers pace, others will look to do the same. Asia’s corporate giants are looking to gain global market share – supported by governments that want to develop national champion brands – and this trend is set to continue.
It’s not surprising that sectors like technology and automobiles are leading the way, they’ve been Asia’s competitive advantage for years. But as the region develops, other industry players – such as the region’s financial institutions, its retailers and resources giants – will also look more to foreign debt to complement more global market share with tasty yields in international bonds.
If Samsung Electronics takes another 15 years to price a public dollar bond deal it might find the market a lot more crowded with its Asian rivals next time around.