Online delivery services provider Meituan raised US$2.5bn from a dual-tranche deal, in the first US dollar bond offering from a Chinese technology company in more than three years.
Meituan's last deal in the offshore market was in 2020, raising US$750m 2.125% five-year and US$1.25bn 3.05% 10-year notes, which was also its debut issue.
The last trade from the Chinese technology, media, and telecommunications sector was a US$4.15bn four-part deal sold by Tencent Holdings in April 2021. These kinds of companies have shunned the offshore market after Chinese regulators started a crackdown on the sector in late 2020, and amidst a high offshore interest rate environment.
With the crackdown starting to ease last year, investors are now more comfortable with tech credits, and welcome the return of those companies for the better yields they offer compared to other Chinese deals this year.
Some bankers are expecting the Meituan deal to open the market for more tech companies.
"The aggressive pricing strategy and the oversubscription rate will give other TMT issuers a good reference. Normally TMT companies focus on the longer curve, and Meituan's 3.5-year and five-year set a good pricing reference," said a banker away from the deal. He also expects issuers to consider longer tenors following AIA's recent 30-year trade.
"We did receive some reverse enquiries from accounts for 30 years at certain funding costs," he said.
A banker on the deal said he has been talking to some tech names, and those deals may be realised next year. He said there is better demand in longer tenors, but issuers prefer short tenors as they expect interest rates to continue to go down.
"They'll come back when the relative yield comes down," said a second banker away from the deal. "I understand that they have a lot of cash on hand and they don't need the money."
Bankers also pointed out that tech companies have many other offshore funding options. Many, including Alibaba, JD.com and Trip.com, have sold convertible bonds this year, but Meituan opted for bonds instead of CBs to meet its refinancing needs.
Crowded market
Meituan's deal was split between a US$1.2bn 4.5% 3.5-year and US$1.3bn 4.625% five-year portions.
The 3.5-year note was priced at 99.635 to yield 4.614%, or a spread of Treasuries plus 115bp, and the five-year at 99.467 to yield 4.746%, or a spread of 125bp. The two tranches were marketed at initial price guidance of 145bp area and 160bp area respectively.
Market participants like the tech sector and Meituan's credit, but the deal suffered in the secondary market because of overall market sentiment and the large deal size.
The 3.5-year note widened about 7bp–9bp on Wednesday, while the five-year managed to hold up around the reoffer level on Wednesday but dropped 3bp the following day.
A Hong Kong-based fund manager said investors were probably allocated more than they expected so they dumped bonds in the secondary market. He suggested that Meituan might have achieved a better outcome by raising only US$1bn from its comeback deal and then coming back to market for more in the following months.
"Also there're a lot of deals this week, and Meituan is a repeat name. If it's a new name like Muangthai Capital, maybe it's okay," said the fund manager, referencing a debut borrowing out the day before. "They put the deal in the wrong week."
He said that the situation felt similar to the first week of September, when deals did not do as well as expected because the market was so crowded. The backdrop is also less supportive because inflows into funds have slowed, he said.
A second banker on the deal argued that Meituan had good reason to print in such size, as it has maturities coming due. A US$1.5bn convertible bond will become puttable in April 2025 and a US$750m 2.215% bond will mature in October next year.
"Who knows whether the market is still there in the coming months," said the banker.
A trader said the cooling down of the onshore market on Wednesday, after China's stimulus measures boosted the market sentiment the previous day, also affected the deal. She said the bonds traded higher in the morning before starting to drop in the afternoon.
Rating upgrade
Meituan benefited from a recent rating upgrade and its strong business performance to price at better spreads. The company was upgraded by one notch by all three major rating agencies this month and is now rated Baa2/BBB+/BBB. The notes will be rated in line with the issuer.
Those rating agencies said Meituan reported better than expected profitability and cashflow. Its core local commerce revenue grew 23% in the first half this year, outpacing overall growth of 3.7% in China's retail sector and 7.9% in the catering sector, said S&P. The company expanded its food delivery business to Hong Kong last year and to Saudi Arabia this month.
Its outstanding bonds tightened significantly. Its 3.05% 2030 bond, which the leads used as the main comparable, tightened from 150bp at the beginning of this year to 130bp by late August. It was trading at 120bp when the new deal was announced.
The leads estimated a new issue premium of the high single digits for the 3.5-year and 5bp for the five-year.
"We haven't seen much China supply in five-year," said the second banker on the deal, commenting on the better performance of the five-year deal. "That's why the five-year had a stronger response and a bigger book. So we tightened the five-year more, 35bp, as opposed to the 30bp of the 3.5-year."
For the 3.5-year, orders reached US$3.1bn, including US$15m from the leads, from 164 accounts. Asset and fund managers took 63%, banks and insurers 26%, central banks, sovereigns, supranationals and agencies and official institutions 9%, and corporates, private banks and others 2%. Asia bought 63%, the US 24% and EMEA 13%.
For the five-year, the order book was at US$4.8bn, including US$15m from the leads, from 243 accounts. Asset and fund managers accounted for 73%, banks and insurers 18%, central banks, sovereigns, supranationals and agencies and official institutions 8%, and corporates, private banks and others 1%. Asia was allotted 62%, the US 29% and EMEA 9%.
Goldman Sachs, Bank of America, Morgan Stanley and HSBC were joint global coordinators, as well as joint lead managers and bookrunners with UBS, Barclays and Citic Securities.
The proceeds will be used for refinancing and general corporate purposes.