State Grid Corporation of China, the world’s largest public utility and power grid company in terms of revenue, on April 26 printed the largest US dollar bond deal out of Asia so far this year – a four-tranche offering totaling US$5 billion – to help fund its expansion plans.

The Reg S/144A transaction comprised of a three-year tranche amounting to US$900 million, which was priced at 99.836% with a coupon of 2.25% to offer a yield of 2.307%. This represented a spread of 85bp over US treasuries, or 25bp inside the initial price guidance of the 110bp area.

The second tranche was a five-year bond amounting to US$1.25 billion, which was priced at 99.861% with a coupon of 2.75% to offer a yield of 2.78%. This was equivalent to a spread of 95bp over the treasuries, or 25bp tighter than the initial guidance of the 120bp area.

The third tranche was the largest part of the offering at US$2.35 billion for 10 years, which was priced at 99.941% with a coupon of 3.50% to offer a yield of 3.507%. This represented a spread of 120bp over the treasuries, also 25bp tighter than the initial guidance of the 145bp area.

The final tranche was a 30-year bond for US$500 million, which was priced at par with a similar coupon and re-offer yield of 4%. This was 15bp inside of the initial guidance of the 4.15% area and equivalent to a spread of 102.6bp over the treasuries.

With tighter pricing, the bonds offer minimum new issue premium and traded a bit wider in the immediate aftermarket.

The transaction garnered a final order book of about US$8 billion with the three-year bond attracting a total demand in excess of US$1.3 billion from 80 accounts. In terms of geographical distribution, 45% of the bond was allocated in the US, 42% in Asia and 13% in EU. By type of investors, fund and asset managers accounted for 39%, banks and private banks 30%, corporates 16%, and insurance companies, pension funds, central banks and sovereign wealth funds 15%.

The five-year tranche generated total orders of over US$2 billion from 116 accounts with 51% sold in the Asia, 40% in the US and 9% in EU. Fund and asset managers drove this offering as they bought 62% of the bond, while banks and private banks took 34%, corporates 3%, and insurance companies, pension funds, central banks and sovereign wealth funds 1%.

The 10-year bond attracted the most interest from investors as it garnered the largest orders amounting to over US$3.8 billion from 206 accounts. More than half of the paper was distributed in Asia at 55%, with 23% allocated in EU and 22% in the US. Fund and asset managers accounted for the bulk of the bond with 76%, while banks and private banks purchased 17%, and insurance companies, pension funds, central banks and sovereign wealth funds 7%.

The 30-year bond secured a total demand in excess of US$800 million from 63 accounts, with 78% of the paper allocated in Asia, 17% in the US and 5% in EU. Fund and asset managers took 58%, insurance companies, pension funds, central banks and sovereign wealth funds 36%, and banks and private banks 6%.

The offering was issued through State Grid’s indirectly wholly-owned subsidiary State Grid Overseas Investment (2016) Limited and the proceeds will be used for general corporate purposes, including capital expenditure (capex) and overseas investments.

Bank of China, Citi, Goldman Sachs, HSBC, ICBC International and Morgan Stanley were the joint global coordinators for the transaction, as well as joint bookrunners and lead managers, along with ANZ, Bank of America Merrill Lynch, China Construction Bank, Credit Suisse, Deutsche Bank, J.P. Morgan, Mizuho Securities and UBS.

Moody’s Investors Service vice-president and senior analyst Ivy Poon says they expect State Grid’s leverage to increase in 2017, but the overall financial impact is manageable.

In 2016, the company, through its overseas investment platform State Grid International Development, entered the global clean energy space, acquiring Brazilian power company CPFL Energia from Camargo Correa SA for US$13.3 billion – the largest ever Chinese outbound M&A into Latin America.

Moody’s estimates the company will incur an annual capex of between 400 billion yuan (US$58 billion) and 500 billion yuan over the next three years, with the majority likely to be spent on the expansion and upgrade of domestic grid networks.

In May 2016, State Grid executed a dual-currency, multi-tranche transaction, pricing a US$1 billion issue for five years and 10 years, and a one billion-euro (US$1.09 billion) deal for six years and nine years.