This is the issuer’s debut USD bond. Here are the details of the deal:


Issuer: CITIC Envirotech Ltd. (“Company”)
Issue: Perpetual Securities (the “Perpetual Securities”) to be issued under its USD750,000,000 Multicurrency Perpetual Securities Issuance Programme (the “Programme”)
Ratings: Unrated
Format: Regulation S only and S274 & 275 of Singapore SFA, issuance off the Programme
Issue Size: TBD
Ranking of the Perpetual
Securities: Senior Perpetual Securities
Issue Price: 100 per cent
Initial Distribution
Rate Guidance: 5.75% Area
Initial Credit Spread: Based on the initial distribution rate less 3 year UST at time of pricing
Tenor: Perpetual
Call Option: Callable at par on the 3rd anniversary (“First Call Date”) and on any distribution date thereafter at 100%. Redemption may be in whole or in part (on a pro-rata basis).
Distribution Reset: Reset on the First Call Date and every 3-year period thereafter at a rate equivalent to the aggregate of the then-prevailing 3Y UST, the Initial Credit Spread, the Step-up Margin and Change of Control Step-up Margin (if applicable).
Step-up Margin: 500 bps from the First Call Date onwards
Change of Control
Step-up Margin: The Step-Up Margin shall be 500 bps, to be applied upon the occurrence of a Change of Control Event
Change of Control: Change of Control events include CITIC Limited and/or its affiliates reducing their shareholding below 50.1%, as set out under the Programme
Distribution Deferral: At Issuer’s discretion. Any deferred distributions are cumulative and on a compounding basis
Dividend Pusher: Yes, with 12 month look back period
Dividend Stopper: Yes
Other Redemption (at the option of the Issuer):
* At 101% under Change of Control
* At par under taxation reasons, accounting reasons, minimal outstanding amount and tax deductibility reasons
Form and Denomination: Registered / USD200,000 and USD1,000 in integral multiples thereafter
Distribution Payment: Semi-annual, 30/360
Other Terms: In accordance with the Programme
Listing: Singapore Exchange Securities Trading Limited
Clearing: Euroclear/Clearstream
Governing Law: Singapore Law

Sole Global Coordinator and
Sole Bookrunner: DBS Bank Ltd.

Joint Lead Managers: DBS Bank Ltd. and CITIC CLSA Securities.

How does the 5.75% guidance look compared to some of its comps? Here are some of the comparable Chinese non-property perpetuals as a reference:

CELSP4.7 04/18: 100.75, 4.37% (SGD)
CITPAC8.625 perp callable 11/18: 113.50, 3.82%
CHALUM6.625 Perp callable 10/18 104.50, 4.96%
FRESHK5.55 Perp callable 06/17: 101.375, 4.64%

A meaningful way to look at the relative value of the new issue is to look at the pick up in credit spread (over swap curve) of the new perpetual relative to the existing Citic Envirotech senior bond in SGD: CELSP4.7 04/18.

The credit spread of the SGD 2018 senior bond is about +233 bps while at 5.75%, the credit spread of the new USD perpetual (to the 2018 call date) is about +450bps. With the cross currency basis relatively flat, this implies a credit spread pick up of +217 bps. Another way of looking at it is that the spread of the perpetual is 1.93x the senior spread.

How does this compare to the similar curve for parent CITIC which owns 54.9% of CITIC Envirotech? The pick up from the senior CITPAC 6.875% 01/2018 (+155 bps credit spread) to the CITPAC 8.625% Perp Callable 2018 (+240bps credit spread) is +85bps or 1.55x, which is flatter than the pick up for Citic Envirotech. It is also worth noting that the new perp is senior while the CITPAC8.625% is a subordinated perp.

Granted that Citic Envirotech does not enjoy full ownership from CITIC and the wastewater treatment industry is quite different from Citic’s other business lines. However, with a relatively strong structure (including a 500bp step-up if not called in 2018) and a 5.75% coupon, it would not be surprising to see a decent response from investors.