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Lenovo scores on unrated debut|Urumqi Computer Repair
2014-05-03 22:44:12   来源:   评论:0 点击:

Urumqi Computer Repair|The US$1.5bn Reg S bond from Lenovo Group last week, the largest unrated offering in Asia, has set the standard for the region’s others issue...
Urumqi Computer Repair|

The US$1.5bn Reg S bond from Lenovo Group last week, the largest unrated offering in Asia, has set the standard for the region’s others issuers eager to attract high demand without a credit score.

The debut bond drew US$8bn in orders from 411 accounts, drawn to the issue because of a large-ticket anchor investor, Lenovo’s well-known eponymous computer brand and its solid financial performance.

Market participants said Singapore sovereign wealth fund GIC bought almost half of the offering. GIC did not immediately respond to a request for comment and the leads would not confirm the market talk. The reportedly huge anchor interest is one reason the Chinese computer maker chose not to get a rating for the offering, sources say.

“The unrated format allows for quicker execution, especially when the management is busy with acquisitions,” said a banker at one of the 12 leads.

The five-year 4.7% bond priced at 99.819 to yield 4.741%, or 300bp over US Treasuries.

Generally, the market assigns Lenovo’s offering shadow ratings of with BBB– or BBB, which implies a spread in the range of mid-to-high 200bp. The bond priced with a wider spread because of its unrated status, according to analysts.

The 300bp spread still left money on the table, says a buyside credit analyst. His desk reached a fair-value spread of 250bp, based on Lenovo’s credit profile. “Adding premiums of 10bp–20bp for the unrated bond and 20bp–30bp for first-time issuer, the required spread is around 290bp,” the analyst said.

Yet, another buyside analyst reached a fair-value spread of 300bp for Lenovo with reference to BBB– names, such as Bright Food and New World Development, and then adding some premium to compensate for the lack of a rating.

The company also could not bring an unrated bond to the US market, where investors likely would have been big buyers. That demand could have pushed down the yield.

“The company might have left some money on the table as it’s unrated, but it’s a small price to pay to get the deal done,” said the lead banker.

Future performance

The bonds offered investors a wager on the computer giant for its future performance after it completes acquisitions of Google’s Motorola Mobility handset unit and IBM’s low-end server business.

“It takes some forward-looking when analysing this credit,” said the first buyside analyst, adding that the immediate annual revenue contribution from the two yet-to-be-approved acquisitions could be US$10bn, or about a third of Levono’s 2013 sales.

The company also has plenty of liquidity with US$3.6bn in cash and cash equivalents at the end of 2013, enough to pay for the acquisition, if needed.

To finance the acquisitions of US$5.2bn, Lenovo plans to put US$2.5bn in cash up front. Another US$1.5bn will be paid with Lenovo shares and US$1.5bn will be an interest-free deferred payment over the next three years.

Lenovo’s pro-forma gross leverage is around 2x-–2.2x. It is expected to come down to around 1x in three years, according to the analyst, citing management’s statements during the roadshow.

To prepare for a higher debt load, the company has also asked its lenders to raise its maximum total borrowings-to-Ebitda covenant to 3.20x–3.50x from 2.75x during a two-year period on completion of either acquisition. The company obtained a US$1.2bn five-year loan last December to help fund the acquisitions.

Dogfight in secondary

Lenovo’s new bonds rallied to 101.17 in the secondary market last Wednesday, tightening the spread to 270bp.

“It’s a dogfight in the secondary as investors are eager to take more positions due to the diversification value and because Levono is a household name,” said a portfolio manager, who was hoping to purchase more Lenovo bonds Wednesday morning, but balked at the huge rally.

“We expected the bonds to tighten to 270bp in a few months as investors get to digest them, but we didn’t expect the rally to happen immediately,” said the first buyside analyst.

Asian investors bought 83% of the bonds, while European and other offshore investors bought 14% and 3%, respectively.

Public institutions bought 47%, asset managers 35%, banks 6%, private banks 6%, insurance companies 4% and pension funds 2%.

Citigroup was global co-ordinator, as well as joint bookrunner with ANZ, Bank of China, Barclays, Bank of America Merrill Lynch, BNP Paribas, Credit Suisse, DBS, Mitsubishi UFJ Securities, Mizuho Securities, Royal Bank of Scotland and Standard Chartered.

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