Hainan Airlines makes offshore yuan market debut in Hong Kong

"Hainan is lucky to have captured the window, which remains open for new issuance but could quite easily get shut," said a DCM banker in Hong Kong. "If you see a free window, better to hit it than to wait for another day."

And yet the outcome could have been different for the airline, which went out with guidance in the 6 percent area on September 1, but did not price the transaction that day or the next, leaving questions hanging as market participants took a break for the week-end.

Come Monday it still had not crossed the finish line, and as the week progressed speculation intensified that the deal was heading toward the same fate as some other less fortunate borrowers like Korean Air , which in mid-August postponed its plans for a two billion yuan three-year. No official reasons were given for the delay in that case, although according to market participants, it was mainly due to unfavourable pricing.

China Hongqiao Group , the fourth-largest aluminium products manufacturer in China, yesterday cancelled plans for a proposed international bond comprising US dollar and Dim Sum tranches, according to a Fitch ratings note. The borrower had completed a roadshow in mid-July.

There are a handful of other borrowers who similarly have not completed Dim Sum fundraisings: Chinese film production company Golden Harvest, aluminium extrusion products manufacturer China Zhongwang Holdings , pharmaceutical company United Laboratories , knitted fabric maker Fountain Set (Holdings) , and synthetic yuan bonds for Global Dairy Holdings and Zhong An Real Estate Group .

"Investors in Dim Sum markets have certainly become more discerning and are focussed on credit quality. High-yield paper has widened far greater than the high-grade credits," said one DCM banker based in London, adding that high-yield credits had widened by over 100-150bps in the past couple of months on market volatility.

PRC car and car battery manufacturer BYD Co , for example, which counts Warren Buffett among its shareholders, priced its one billion yuan three-year in late April at 4.50 percent. That issue is currently trading at 8.39-7.48 percent. Road King Infrastructure Holdings , in late February raised 1.3 billion yuan from a three-year at 6 percent, which is quoted today at 10.24 percent.

Bankers close to the Hainan transaction argued that the airline had achieved a good outcome considering the market backdrop and the underlying nature of the sector.
"It takes more time for investors to digest information and understand credits from the highly cyclical airline industry. The fact that Hainan is unrated added to the challenge," said one.

Already less-than-conducive issuance conditions combined with US Labour Day on Monday were making things difficult, and yesterday, the International Air transport Association added to the gloom saying the airline sector is expected to be hit more than most in the weaker economic environment.

Although Hainan was making its debut in the Dim Sum market, it thankfully was not the first credit from the sector. The closest comparable was China Eastern Airlines , which in early August raised 2.5 billion yuan three-year with a 4 percent coupon. That was hovering near its par issue price when Hainan went out with guidance.

Hainan’s bond has a similar structure to China Eastern’s offering, carrying a guarantee from the China-listed parent allowing investors to make claims on the airline’s assets in China.

Bankers close to the deal denied that the final size was lower than the borrower’s target, despite the offering circular, which stated that the State Administration of Foreign Exchange had approved a guarantee of up to two billion yuan, prompting market speculation that it was looking to raise as much.