China Resources Gas' Debut Bonds Attract Brisk Demand

China's leading city gas operator China Resources Gas (CR Gas) on March 29 priced a USD750 million bond offering, becoming the latest debut issuer to attract a brisk investor demand.
 
The Reg S/144A 10-year deal was priced at 97.950 percent to yield 4.76 percent on a coupon of 4.50 percent. This was equivalent to a spread of 260bp over the US treasuries, or at the tight end of the final guidance of between 260bp and 265bp, and 10bp inside the initial price talk of 270bp area.
 
At 270bp, a Nomura report says the issue looked fairly priced. Compared with the outstanding 2021 bonds of the similarly-rated Beijing Enterprises, it notes the CR Gas pricing assumed a concession of between 15bp and 20bp on account of heavy capital expenditures (capex), 10bp for the one-year maturity extension, and between 10bp and 15bp on new issue premium to arrive at a fair valuation of z + 265bp – 270bp for the new CR Gas 2012 bonds.
 
The deal attracted a strong order book of USD4.6 billion from 286 accounts with 51 percent of the bonds sold in Asia, 35 percent in the US and 14 percent in Europe. By type of investors, funds accounted for 56 percent, banks 16 percent, insurance companies 13 percent, private banks eight percent and public investors seven percent.
 
The offering was drawn from CR Gas' USD1.5 billion global medium-term note programme and the proceeds will be used for general corporate purposes, including capex, and merger and acquisitions.
 
Citi and DBS Bank are joint global coordinators for the transaction, as well as joint bookrunners along with J.P. Morgan, HSBC, Standard Chartered Bank and UBS.
 
Fitch Ratings assigns a BBB+ rating to the bonds, which it says reflects the profitability and favourable growth prospects of CR Gas' core gas distribution business in China. It likewise incorporates a one-notch uplift for potential support from its immediate parent, China Resources Holdings, and the ultimate majority owner, the China sovereign through the state-owned Assets Supervision and Administration Commission.
 
Fitch expects CR Gas to substantially increase its investments in 2012, possibly exceeding Fitch's initial expectations. However, it says the incremental cash generation from new investments should allow CR Gas to maintain its financial profile appropriate for its current ratings.