Deals of the year - Top quality issuers succeed in demanding markets
China Telecom's debut on the Eurobond market is one of those deals every debt market originator and every treasurer would like to have on his CV. Increased to $600 million from the originally planned $500 million, the five-year issue launched on October 28 could have raised an amount four times its original size and easily have become the largest Asian transaction of 1999, having built a book up to $2 billion. Before launch there were few investors in Hong Kong or the Asia-Pacific region willing to buy any Asian credit at a spread below 220 basis points over treasuries. Yet China Telecom placed 45% of its paper in the region at 190bp over, with the rest being sold in the US (35%) and Europe (20%).
The opening of the story was not so propitious. China Telecom needed the money to cover part of the costs of acquiring three small Chinese operators - Fujian, Henan and Hainan. Just after the decision to issue was taken, book-runners Merrill Lynch, Chase and Bank of China International checked investors' sentiment in Hong Kong. The answer was quite disappointing.