China International Capital Corp Hong Kong (CICC HK) cut the float from the deal due to low demand for trading. The company purchased a three-year fixed rate bond on Monday as much as $600m. However, the floating-rate tranche crashed right a few hours after the offering.
The one that is sold is only the senior fixed-rate notes. The notes cost 99.476 with a 2.875% coupon. The company attempted to yield at least 3.059%, or 105bp over Treasuries. It was all inside the initial guidance of 135bp. Unfortunately, the tranche fell before the announcement of final guidance for the fixed-rate bonds. CICC HK sold a three-year FRN at the SOFR equivalent of 135bp over.
A banker argued that the company faced not enough demand to support the trade. That was why the floater fell. On the other hand, throughout history, Asia is not a big buyer of floaters. The banker said most bank treasuries and their anchors choose natural demand for fixed-rate rather than floaters. So, when there is less interest from Asia only few people will buy SOFR. Market orders are too rare.
But this time is getting more challenging, FRN demand is weaker than usual. It is true that anchor investors have made orders, but they are also seeing stronger markets and demand from Western accounts. When the announcement of price guidance happened, the book reached $1.3bn. It included a $616m lead. Fortunately, before FRN fell, the company had received orders for $1.2bn. This included $855m from the leads.
A banker of the final size argued that the CICC HK had only two choices of doing smallish tranches or bigger fixes. He added that the company has made a significant outcome. The Reg S deal issuance is CICC HK Finance 2016 MTN. It received a guarantee from CICC HK. S&P bonds rates BBB+. The guarantor will keep it with Baa1/BBB+/BBB+ ratings.
