China Bluestar to pay more interest for USD $1b offshore bond offering
(Reuters) 05 June 2015 China National Bluestar has relaunched its US$1 billion debut offshore bond at sweeter terms for investors, after disclosure failings forced it to cancel the original deal earlier this week.
Bluestar, a unit of China National Chemical Corp (ChemChina), sold US$500 million three-year and US$500 million five-year bonds at 250 basis points and 270 basis points respectively, after a four-hour bookbuilding process on Thursday.
At final pricing, it offered spreads 30 to 35 basis points wider and yields 36 to 50 basis points higher than it had agreed a week earlier, paying a hefty penalty for the disclosure issues that derailed its original deal.
The three-year is priced to yield 3.538 per cent and the five-year at 4.375 per cent. That compares with yields of 3.176 per cent and 3.879 per cent when Bluestar first priced the deal a week earlier.
The higher yields will cost Bluestar an extra US$17.8 million in interest payments over the life of the bonds.
“All things considered, we liked the bond [at least from a short-term trading perspective] the first time around and we like it even more now, even accounting for the increasingly nervous market tone,” said Mark Reade, a credit analyst at Mizuho.
Bluestar declared the original trade null and void before the June 3 settlement date due to concerns over the keepwell deed in the preliminary offering circular. Keepwell clauses have become a common feature in offshore bonds from the mainland, where onshore assets cannot be pledged overseas.
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ChemChina, which effectively owns 63.58 per cent of Bluestar, has granted a keepwell deed and a deed of purchase undertaking to ensure Bluestar and Bluestar Finance, the issuing entity, will have sufficient assets and liquidity to meet their obligations.
But Bluestar failed to disclose that some of ChemChina’s shares in Bluestar were already pledged against a US$1.9 billion loan from Export-Import Bank of China in 2011, raising the possibility that ChemChina could lose its control of Bluestar.
ChemChina is required to maintain a controlling stake in Bluestar in order for the keepwell deed to be effective.
Bluestar had previously disclosed ChemChina’s share pledge in documentation for a domestic bond issue.
The relaunched bond now includes a supplement in the offering memorandum that says Export-Import Bank will waive its rights to exercise the share pledge as long as ChemChina does not breach or default on its loan agreements during the life of the new notes.
But the addendum also warns that if ChemChina breaches any of its obligations on the loan, the bank may enforce its share pledge, which will result in ChemChina losing its equity interest in Bluestar. That will leave ChemChina without the ability to meet its keepwell obligations.
Analysts and investors saw little chance of that happening.
The new offering attracted US$2.9 billion in orders, including a majority of the previous investors who still placed original allocations.
“Like many recent China SOE bonds, this deal is a play on the likelihood of continuing government support, and in that regard we don’t think the equation has changed,” Reade said.
ChemChina is wholly owned by the State-owned Assets Supervision and Administration Commission.
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