Taiwan Capital Markets Deal
The State of Qatar’s US$6bn 30-year Formosa bond offering highlighted the diversification benefits and depth of demand in the Taiwanese market.
The deal showed the growing clout of Taiwan’s buyside, as it helped Qatar reach the broadest investor base possible in its largest ever bond issue.
When Qatar came to market in April, it was nearly a year into an economic blockade imposed by countries including Saudi Arabia and the UAE. That had caused Qatar to change some of its trading partners, and could have weakened demand for its sovereign bond offering, especially given that its Gulf neighbours had been on an issuance spree this year and had soaked up a lot of cash from traditional emerging markets investors.
Instead, it chose to embrace diversification. Qatar managed to print its biggest bond issue to date, totalling US$12bn across three tranches, and the largest from an emerging market issuer this year.
The success was thanks in part to its decision to include a Formosa tranche. The tenor of 30 years clearly targeted to appeal to Taiwanese insurers and asset managers, though it also attracted international investors looking for duration from a high-quality issuer.
The US$6bn Formosa tranche was the first international Taipei-listed bond from a sovereign issuer, and attracted a hefty US$20bn of demand for that piece alone. As a result, the longest tranche ended up accounting for half of the overall Yankee trade.
Guidance tightened 25bp from initial guidance to the final pricing of Treasuries plus 205bp. That marked a new issue premium of around 20bp and took advantage of recent flattening of the curve to give Qatar the certainty of long-term funding while optimising pricing.
Taiwanese investors jumped at the chance to earn a 5.103% coupon from a Double A rated sovereign, since they face regulatory restrictions on the kinds of foreign credits they can buy.
Many of those investors were already familiar with the credit of state-owned Qatar National Bank, which had previously issued Formosa bonds. In fact, QNB returned to the Taiwanese market a month after the sovereign deal, benefiting from a refreshed curve.
Qatar’s offering served to show that Taiwan’s investor base can be a valuable addition to an international offering, complementing other sources of demand for the 144A/Reg S trade and enabling the sovereign to achieve a huge size across a range of tenors without overpaying.
Deutsche Bank Taipei branch and Standard Chartered Bank (Taiwan) were bookrunners on the 30-year piece, which is listed on the Luxembourg Stock Exchange and Taipei Exchange.