BOCOM Financial Leasing extends credit curve in latest bond deal

BOCOM Financial Leasing Company, one of the leading financial leasing companies in China, waded into a crowded bond market ahead of the anticipated US interest rate hike to price on March 14 a multi-tranche offering totalling US$2 billion. In doing so, it managed to extend its credit curve and set a new price point for themselves in the 10-year space.

The Reg S deal comprised of a three year bond amounting to US$700 million, which was priced at 99.792% with a coupon of 3% to offer a yield of 3.073%. This represented a spread of 140bp over the US treasuries, or at the tight end of the final price guidance of 145bp area (+/- 5bp) and 20bp inside of the initial guidance of 160bp area.

The second tranche was a five-year bond amounting to US$1.05 billion, which was priced at 99.478% with a coupon of 3.50% to offer a yield of 3.615%. This was equivalent to a spread of 150bp over the treasuries, also at the low end of the final guidance of 155bp area (+/- 5bp) and 20bp tighter than the initial guidance of 170bp area.

The final tranche was a 10-year bond amounting to US$250 million, which was priced at 99.485% with a coupon of 4.25% to offer a yield of 4.314%. This represented a spread of 172.5bp over the treasuries, likewise at the tight end of the final guidance of 175bp area (+/- 2.5bp) and 27.5% back of the initial guidance of 200bp area.

All tranches performed in the secondary market as they further tightened by 2bp for three years, 1bp for five years and 5bp for 10-years as at early afternoon of March 15.

“We have a very front-loaded week in terms of bond issuances with a lot of issuers in the US coming into market on Monday,” notes a banker familiar with the deal. “So in line with the other sophisticated issuers, BOCOM Financial Leasing decided to tap the market ahead of the US interest rate hike announcement.”

On March 15, the US Fed, in a widely anticipated move, raised the benchmark interest rate by 25bp for the second time in four months amid the rising confidence that the US economy is poised for a strong growth.

The transaction enabled BOCOM Financial Leasing to extend its debt maturity profile as it accessed the 10-year tenor for the first time. The company tapped the US dollar bond market for US$1.5 billion in October 2016 with a dual tranche offering consisting of a three-year bond amounting to US$500 million with a yield of 2.283% and a five-year bond amounting to US$1 billion with a yield of 2.714%.

“We saw the result of this curve diversification as the 10-year book attracted a large take-up from the fund managers,” the banker points out. This tranche generated a total demand in excess of US$700 million from 62 accounts, with the fund managers accounting for 56% of the bond, banks 28%, insurance companies 10%, private banks 1% and other investors 5%. In terms of geographic distribution, 98% bond the paper was sold in Asia and 2% in EMEA.

The other two tranches garnered an order book of over US$2.1 billion from 115 accounts for the three-year bond and over US$2.3 billion from 125 accounts for the five-year bond. The three-year was allocated 94% in Asia and 6% in EMEA, and sold to banks (65%), fund managers (27%), insurance companies (2%), private banks (2%) and other investors (4%).

The five-year was distributed 95% in Asia and 5% in EMEA, with banks accounting for 67%, fund managers 29%, private banks 1% and other investors 3%.

The bond, issued through Azure Nova International Finance and guaranteed by BOCOM Financial Leasing, was drawn from the company’s US$5.5 billion medium-term note programme and the proceeds will be used for general corporate purposes, including investments in the leasing business.

ANZ, Bank of Communications (Hong Kong), BOCOM International, CICC Hong Kong Securities, Haitong International, HSBC, J.P. Morgan and Standard Chartered were the joint bookrunners and lead managers for the transaction.

Date

16 Mar 2017

Channel

Capital Markets

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