HONG KONG, May 15 (IFR) - China's Huawei Technologies raised its international profile this week with an investor-friendly debut bond, scotching fears that US cybersecurity concerns would leave it struggling to attract a following.
The US$1bn 4.125% 10-year deal drew a massive, US$8.5bn order book even though it came with no rating in a volatile market.
Huawei, which US politicians have accused of spying for China, paid a handsome premium over comparable credits, and was by far the most popular Asian new issue in the US dollar market this week. The US$8.5bn order book trumped the response for Trade and Development Bank of Mongolia, China General Nuclear Power and Agile Property Holdings.
"Huawei is not known for being transparent, but wanted to change that and demonstrate that is more investor friendly," said one banker close to the deal.
For its last bond issue in the CNH market, Huawei required investors to sign a confidentiality agreement to receive a prospectus. That requirement was dropped for its US dollar debut, a sign that Huawei is embracing international standards in an effort to be transparent.
The leads emphasised that Huawei's debut offering was intended to develop a relationship with international investors and, even at the expense of paying a double-digit premium over comparables like Tencent and Alibaba.
The bonds priced at 99.006 to yield 195bp over US Treasuries.
Even though investors see Huawei's credit fundamentals as being similar to those of Tencent, rated A2/A by Moody's and Standard & Poor's, and Alibaba, an A1/A+/A+ credit, the lack of a rating meant investors expected a premium for the lack of access to the company's financials. Tencent and Alibaba are listed, while Huawei is a private company.
Bankers said investors were looking for an extra spread of about 50bp, but final pricing yielded less than that. Tencent's 3.8% 2025s were quoted at G+163bp and Alibaba's 3.6% 2024s were at G+159bp.
Two bankers on the deal stressed that Huawei had room to tighten further from final pricing on the back of the strong order book, but decided to leave more juice on the table to build support for future issuance.
"To be frank, we could have priced at 185bp and most accounts, including sovereign wealth funds, still supported the 190bp mark," said one of the bankers.
The bonds soared the following day, gaining more than a point even after the yield on the 10-year US Treasuries jumped to its highest since November.
Bankers declined to comment on whether Huawei's gesture of goodwill towards investors was related to US allegations that the company is involved in cyber-espionage for the Chinese Government, which have prevented it from making inroads into the US market.
"The premium does not factor that in," said the banker. "It did not come up during the roadshow."
He added that the decision to issue the bond in the Reg S format was a natural first step for a Chinese issuer before heading to the more disclosure-heavy 144A market, rather than a decision to steer clear of US investors due to security issues.
Bankers also noted that offshore US and European investors were allocated a combined 23% of the bonds, in a sign that these concerns were largely ignored.
Huawei also received bids of at least US$200m each from some sovereign wealth funds, which surprised syndicate bankers. These state-owned buyers, along with insurers, were allocated 35%.
Fund managers received 58%, banks got 4% and corporations and private banks got 3%.
Although it is Huawei's first foray into the US dollar bond markets, the exercise is not intended to boost its liquidity.
Huawei's total debt-to-Ebitda ratio stood at 0.7x last year and its free cashflow-to-total debt was at 125%, according to the deal prospectus.
The issue, however, will help the Shenzhen-based company build a longer credit curve. Its longest-dated bonds are the Rmb1.6bn (US$258m) 4.55% September 2017s.
The issuer is Proven Honour Capital and the guarantor will be Huawei Investment & Holding Co.
Investors have a change-of-control put at 101% if the Union of Huawei Investment & Holding - the group of employees that own the company - ceases to have control of the guarantor.
ANZ, Bank of China (Hong Kong), DBS, ING and Standard Chartered were joint bookrunners. (Reporting By Frances Yoon, editing by Dharsan Singh, Daniel Stanton and Steve Garton)