Two of China’s largest state-owned oil companies, China Petrochemical Corporation (Sinopec Group) and CNOOC, tapped the international debt capital markets in April for a combined US$10.2 billion in tightly priced transactions that generated robust investor demand.

Sinopec on April 21 priced the largest ever dual currency issuance out of Asia as it tapped both the US dollar and euro bond markets for a multi-tranche jumbo offering equivalent to US$6.4 billion. In doing so, the company achieved tight pricing, particularly at the long end of the curve.

The Reg S/144A deal comprised three US dollar tranches, including five-year notes amounting to US$2.5 billion, which were priced at 99.576% with a coupon of 2.50% to offer a yield of 2.591%. This was equivalent to a spread of 125bp over the US treasuries, or at the tight end of the final price guidance of 130bp area (+/- 5bp). This is the largest five-year tranche by a Chinese issuer and the bonds traded well in the secondary market as they tightened by another 2bp around lunch time on April 22.

The second tranche was for 10 years amounting to US$1.5 billion, which was priced at 99.022% with a coupon of 3.25% to offer a yield of 3.366%. This represented a spread of 145bp over the US treasuries and was likewise at the low end of the final price guidance of 150bp area (+/- 5bp). The bonds also performed in the secondary market as they tightened by 1bp.

The third tranche was for 30-years amounting to US$800 million, which was priced at par with a similar coupon and re-offer yield of 4.10% - also at the tight end of the final price guidance of 4.15% area (+/- 5bp) – and equivalent to a spread of 152bp over the US treasuries. This was the lowest 30-year yield ever achieved by a Chinese issuer and the bonds were hovering around re-offer levels at lunch break on April 22.

Sinopec also sold a total of 1.5 billion euro (US$1.6 billion) bonds – the largest ever issuance in this market by a Chinese issuer – consisting of 850 million euro 0.50% senior notes due 2018 and 650 million euro 1.0% senior notes due 2022. The three-year notes were priced at 99.716% with a 0.50% spread to mid-swap, while the seven-year notes were priced at 99.243% with a 0.80% spread to mid-swap.

The company first tapped the euro bond market in October 2013 when it raised 550 million euro for seven years, paying a coupon of 2.625%.

The US$6.4 billion equivalent bond transaction, issued through the newly-established special purpose entity Sinopec Group Overseas Development (2015) and guaranteed by Sinopec, was the third largest ever offering out of Asia in just over the past six months following the US$8 billion bond issuance by Alibaba last November and the US$6.5 billion bank capital by Bank of China in October.

A banker familiar with the transaction says a deal of such size would typically involve reasonably large selling concession. But in this case, Sinopec managed to price the bonds extremely tight to their secondaries. Their outstanding five-year bonds were trading at treasuries + 100bp or a G-spread of 124bp, while the 10-year bonds were quoted at treasuries + 132bp or a G-spread of 139bp. The 30-year bonds were trading at treasuries + 165bp or a G-spread of 169p.

This means a tight premium of 1bp for the five-years, 6bp for the 10 years and a negative premium of 17bp for the 30 years. “This deal has demonstrated that Sinopec is such an established credit and is able to hit the market opportunistically without a roadshow,” the banker points out.

The company announced the mandate late Monday, April 20, Asia time in order to flag the transaction and give the European and US accounts time to look at the deal. The arrangers announced initial price guidance for the US dollar tranches of 145bp area for the five-years, 160bp area for the 10-years and 180bp area for the 30 years.

The US dollar offering attracted a total order book of US$15.1 billion, with the five years garnering total demand of over US$7 billion from about 400 accounts, while the 10-year tranche generated an order book of over US$4.8 billion from 275 investors.

The 30-year bonds garnered orders in excess of US$3.3 billion from 220 accounts, while the euro tranches have a combined order book of 4 billion euro with the three-year attracting 2.3 billion euro from 180 accounts and the seven-year 1.7 billion euro from 160 accounts.

Proceeds from the transaction will be used for general corporate purposes of Sinopec’s overseas businesses and to refinance existing indebtedness. Bank of China, Citi, Deutsche Bank, HSBC and Goldman Sachs were the joint global coordinators for the transaction as well as joint bookrunners along with Bank of America Merrill Lynch, CCB International, DBS, ICBC International, ING, J.P. Morgan, Mizuho Securities, Morgan Stanley, Societe Generale CIB and
Standard Chartered.

CNOOC followed on April 28 when it priced a three-tranche transaction totaling US$3.8 billion, ahead of the Federal Open Market Committee (FOMC) meeting.

The SEC-registered deal consisted of five year notes amounting to US$1.5 billion, which was priced at 99.716% with a coupon of 2.625% to offer a yield of 2.686%. This was equivalent to a spread of 128bp over the US treasuries, or 22bp tighter than the initial price guidance of 150bp area.

The second tranche was a 10-year bond amounting to US$2 billion, which was priced at 99.075% with a coupon of 3.50% to offer a yield of 3.611%. This represented a spread of 160bp over the US treasuries or 20bp inside the initial guidance of 180bp area.

The final tranche was a 30-year issue amounting to US$300 million, which was priced at par with a similar coupon and re-offer yield of 4.20%. This represented a spread of 149.6bp over the US treasuries, or about 20.4bp tighter than the initial guidance of 170bp area.

The deal garnered a total demand of US$10.75 billion, with the five-year bonds generating US$4 billion from 239 accounts, while the 10 year bonds attracted US$6 billion from 317 accounts. The 30-year paper secured an order book of US$750 million from 57 accounts.

The five-year and 30-year notes were issued through CNOOC Finance (2015) Australia, while the 10-year bonds were issued through CNOOC Finance (2015) USA – both newly-established special purpose entities and are guaranteed by the parent CNOOC. Proceeds from the issuance will be used for general corporate purposes.

BOC International, Citi, Credit Suisse and Goldman Sachs acted as the joint global coordinators for the transaction as well as joint bookrunners along with Bank of America Merrill Lynch, CICC HK Securities, ICBC International, J.P. Morgan, Morgan Stanley, Societe Generale CIB, Standard Chartered.

CNOOC last tapped the US dollar bond market in April 2014 when it also priced a three-tranche transaction totaling US$4 billion, It comprised of three-year paper amounting to US$1.25 billion with a coupon of 1.625%, 10-year notes amounting to US$2.25 billion with a coupon of 4.25% and 30-year notes amounting to US$500 million with a coupon of 4.875%.

The Hong Kong-incorporated CNOOC Limited is an oil and gas exploration and production company with operations mainly in offshore China. It is 64.44%-owned by China National Offshore Oil Corporation.