July 28, 2015 / 7:56 AM / 4 years ago

Buy-and-hold investors help bond duo defy China volatility

HONG KONG, July 28 (IFR) - A pair of Asian issuers braved a collapsing Chinese equity market on Monday to price international bonds, in a sign of investors’ confidence in the renminbi and Chinese credit risk.

China Merchants Holdings International attracted orders of $2.3 billion for $700 million of bonds with maturities of five and 10 years, while South Korea’s Shinhan Bank made its debut in the offshore renminbi market with a 4.2 percent 1.2 billion renminbi three-year print.

Both were oversubscribed and are now trading above par.

Stock market volatility and an uncertain outlook for China’s economy has pushed a number of issuers to the sidelines in recent weeks, and a surprise 8.6 percent drop on the Shanghai Stock Exchange to begin the week has stopped others from coming to market.

China Merchants and Shinhan Bank showed that well-known issuers can get deals done, but bankers warned that others would struggle to follow suit.

“I think the trick here was getting strong hands on the deal,” said a syndicate banker with knowledge of the China Merchants deal. “You can see large allocations to banks and insurance companies which tend to be solid buy-and-hold investors. So that helped mitigate what we’ve seen in China.”

In the case of China Merchants, syndicate bankers on the deal said that the issuer had the advantage of beginning the marketing process as far back as June 8, which enabled them to get enough anchor orders to keep the deal afloat. They added that on Monday there was not much competing supply.

NO PANIC

As a Dim Sum bond, Shinhan’s deal had the added complication of being issued in a currency that many expect to weaken as China’s economy cools. However this did not seem to put off investors.

Attracted to a rare issue from an A3/A/A rated Korean firm, Shinhan brought in an order book of 2.5 billion renminbi ($353 million) from 60 investors for a 4.2 percent 1.2 billion renminbi three-year deal. By Dim Sum standards, a bond twice covered is a solid result.

“What happened in China is certainly making investors nervous, but for the Dim Sum market it’s a little different,” said a syndicate banker familiar with the deal. “If you look at the secondary market, it’s still OK. You haven’t seen the same panic that happened in US dollar markets.”

Bankers also pointed out that the cross-currency swap rate remained helpful for Dim Sum issuers looking to swap the proceeds back into US dollars. The three-year CCS has risen from below 3 percent in early June to the present 3.56 percent.

Still, bankers on the deal acknowledged that a lower-rated issuer would have been unlikely to make it to market.

While the bonds offer banks and issuers a playbook for how to get deals done in this climate, bankers accepted that the next few weeks were likely to be quiet.

Last week Zhuhai Huafa mandated Credit Suisse for a Dim Sum bond but has yet to release any price guidance. Even the usually reliable Formosa CNH market has gone quiet, with the most recent deal a miniscule 200 million renminbi five-year bond for Societe Generale on July 22.

G3 and high-yield bankers said there were a number of deals in the pipeline, but until there was a semblance of stability out of China it would make deals difficult. At the same time, however, issuers looking to raise funds before the traditional summer lull may be running out of time. (Reporting By Spencer Anderson; Editing By Steve Garton and Daniel Stanton)

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