CNOOC's US$4 billion bond sale marks the biggest defeat for the Chinese corporate dollar loan market as companies sell six times more notes in the US currency this year to refinance debt.
The mainland's largest offshore energy explorer undertook a record offering of securities to replace part of a loan used to acquire Nexen, which operates in Canada's oil sands, data shows. The company paid 3 per cent to sell debt due 2023, 87.5 basis points less than a year earlier, after 10-year Treasury yields last week fell to the lowest since December. Mainland borrowers are paying an average of 45 basis points less than in 2012 for US dollar loans.
Mainland and Hong Kong issuers sold US$18.8 billion of US dollar-denominated bonds to refinance debt this year, more than six times similar issuance for the same period last year, meeting demand from global fund managers seeking higher yields in emerging markets. The companies signed US$12.2 billion of syndicated loans, as banks showed caution before tighter regulatory requirements on capital.
"Borrowing costs have declined significantly, so bond sales allow a strong company like CNOOC to issue debt, and secure cheap and long-term financing," said Singapore-based Leong Wai Hoong, who buys investment-grade and high-yield Asia dollar bonds at Nikko Asset Management. "Bank loans are usually available for shorter-tenor debt, where the principal must be repaid gradually." Some US$25.2 billion of loans to companies on the mainland and in Hong Kong mature this year, 76 per cent more than in 2012, data shows. That is in addition to U$52 billion in US dollar bonds those companies are due to repay before January.
Sinochem Group, the mainland's biggest supplier of chemical products, planned to use part of a US$600 million perpetual bond it sold last month for short-term loan refinancing, a source said at the time. China Petroleum & Chemical Corp (Sinopec) is using some of the US$3.5 billion it raised from a four-part bond offering to "repay certain bank debt", according to an April 19 Hong Kong stock exchange statement.
"It makes sense for corporates to have longer tenor and non-amortising debt as part of their capital structure alongside loans," said Justin Crane, the Singapore-based global head of loan syndicate and distribution with Standard Chartered.