Chalieco debuts in offshore bond market with perpetual securities

China Aluminum International Engineering Corporation (Chalieco) on February 21 priced its perpetual securities amounting to US$300 million with a unique structure that helped generate sufficient investor demand.

The Reg S deal has an initial distribution rate of 6.875%. The first call date is at year three with reset at three-year US treasuries plus initial spread and 500bp. Then it can be called anytime afterward on a coupon payment date.

Other features of the securities, according to a Nomura report, include cumulative and unlimited coupon deferral at the issuer’s discretion and a dividend pusher with a three-month look-back. It notes that the change of control clause is a call, not a put option, if the guarantor ceases to 100% own the issuer, or the State-owned Assets Supervision and Administration Commission (SASAC) ceases to own and control at least 75% of the guarantor. There are no standard high yield covenants in this bond.

The securities are issued by Chalieco Hong Kong Corporation, a special purpose vehicle set up by Chalieco in Hong Kong. They received dual credit enhancement from Chalieco and Chalieco’s parent company, Aluminum Corporation of China (Chinalco).

Chalieco guarantees the due payments by the issuer under the terms of the perpetual securities while Chinalco provides a keepwell deed in support of the perpetual securities issuance.

The offering provides funds for the company’s overseas acquisition of projects and export of technology. It also satisfies the preference of some investors in terms of securities duration amid widespread expectations of rising interest rates.

With such a unique structure and Chalieco’s credit story, the deal was 6x covered with an order book of US$1.8 billion. The deal received a 100% equity accounting treatment, thus enhancing the company’s capital structure.

Morgan Stanley acted as the sole global coordinator for the deal, as well as a joint bookrunner along with CLSA. ABC International was a co-manager.

The perpetual securities represented Chalieco’s inaugural foray in the offshore bond market following its initial public offering in July 2012. The company is a leading technology, engineering service and equipment provider in the non-ferrous metals industry in China, capable of providing full business chain integrated engineering solutions throughout the various stages of the non-ferrous metals production chain.


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