Hong Kong tycoon Li Ka-shing’s flagship company Cheung Kong Holdings (CKH) on September 1 priced a SGD500 million (USD416.67 million) senior perpetual bond deal to yield 5.125 percent. The issuance is the first Singapore dollar senior perpetual bond offering by an offshore corporate issuer, and the first ever senior perpetual in Asia – previous perpetual bond issuances were in subordinated format.
The transaction, issued through Cheung Kong Bond Securities Limited, drew a strong investor interest with the order book crossing the SGD700 million mark, according to a source close to the deal. Private banks were allotted 80 percent of the bonds, while 11 percent went to asset managers, and the rest to banks and other investors. Geographically, 95 percent of the paper was distributed in Singapore, while the remaining five percent went to investors in Hong Kong and other countries.
The deal was launched with the price talk in the low of five percent, with the final guidance set at 5.125 percent. The fixed coupon offering is callable at par at the end of five years and on every distribution date thereafter. The roadshow was expanded from just one day in Singapore to three days spanning both Hong Kong and Singapore due to strong initial response.
DBS and J.P. Morgan were the joint bookrunners for the transaction. J.P. Morgan was also the sole bookrunner for Cheung Kong Infrastructure Holdings’ (CKI) USD1 billion subordinated perpetual notes issued in September 2010, which offered a yield of 6.625 percent.
The CKH perpetual, much like CKI’s issue, has no coupon reset or step-up margin, which means that the likelihood that the bonds will be called is quite low as there is little reason for the issuer to do so.
According to analysts at Nomura, who compared the transaction with CKI’s and Hutchison Whampoa’s USD2 billion hybrid perpetual issued in October 2010, the current issue has a stronger structure compared to the CKI issue because of seniority of the claim, but it is weaker than Hutchison’s perpetual due to the absence of coupon resets and step-up margins. This means the deal should have been priced tighter than CKI perpetual but wider than the Hutchison deal.
“After giving a generous 70bp to 75bp discount for CKH perpetual seniority and a strong parent, we believe that a US dollar yield of about seven percent is fair. That translates into a fixed coupon of 5.75 percent to six percent in Singapore dollar terms,” according to Nomura analysts.
The proceeds for the bond sale are to be used for general corporate purposes. The senior perpetual will get equity treatment in CKH’s book.
The deal marks a continuing trend of Hong Kong borrowers tapping the Singapore dollar market as they seek to benefit from the arbitrage opportunities offered by the Singapore dollar market where rates have fallen to a record low lately.
The Singapore swap offered rates, or SOR, which is average cost of funds used by banks in Singapore for commercial lending, fell to negative territory for the first time in the history in August. Although the rates have come back slightly, they remain low, making it an attractive fund raising market for issuers. Wharf Holdings and Wheelock Properties are the two other Hong Kong issuers that have tapped the Singapore dollar market in the recent past.
