Photo of Sabry Salman, Barclays, Michiel Radder, BNP Paribas, Simon Jones, J.P. Morgan and Joshua Park, Hyundai Capital America.
This is a very interesting account of how Hyundai successfully executed a global US dollar issuance strategy, expanding well beyond their traditional US format – the US investment grade market standard – by beginning the transaction overnight in Asia and then following the sun from Europe to the US. A very innovative approach to funding.
Following the sun delivers highly innovative funding solution
From 2013-2015, HCA expanded its senior unsecured bond programme with increasing US dollar issuance each year. During 2016, HCA carefully evaluated the cost challenges posed by the first rising rate environment in a decade, and started to think of innovative strategies that could help obtain US dollar funding in the capital markets at the best possible price, expand and diversify their investor base and increase HCA’s flexibility as a frequent bond issuer.
Frank Boroch, Director, Treasury explains, “After extensive internal discussion and planning with external advisors, we introduced a global US dollar issuance strategy, by beginning our transaction overnight in Asia and following the sun from Europe to the US.”
Inaugural USD global transaction and ten-year bond – September 2016
On the morning of 22nd September 2016 in Asia, HCA initiated the global USD debt offering and garnered over US$1.4bn in orders from Asia and Europe before US investors even arrived in their offices. Given the strong demand from outside the US, HCA was able to tighten pricing indications prior to the US open. For their part, US investors added US$1bn+ of orders, pushing total order books to a peak of US$2.9bn, equating to 2.6x subscription levels.
The strong order book enabled HCA to ultimately tighten pricing by 17 basis points (bps) from start to finish, pricing a total of US$1.1bn split US$600m three-year tranche and US$500m ten-year tranche. The final book was exceptionally diversified with ~50% of the transaction going to Asian and European investors vs ~15% previously. The strategy to announce the offering in Asia and ‘follow the sun’ enabled HCA to garner interest from a much broader universe of potential investors, a 40% increase in the number of unique investor orders vs their traditional offering format which was limited to 8:30am-2pm New York time.
Inaugural three-year USD global floating rate bond (FRN) – March 2017
On the morning of 29th March 2017 in Asia, HCA replicated its global launch strategy and garnered over US$1.4bn in investor orders before the US market even opened. In particular, demand from Asian and European accounts was particularly strong for the three-year FRN and five-year fixed rate tranches. Demand for the floating rate three-year bond surpassed all expectations and enabled them to have additional conviction with respect to the three-year fixed rate tenor pricing levels. Total three-year fixed and floating demand equated to four times subscription levels.
Best practice and innovation
HCA’s introduction of a global US dollar launch ‘follow the sun’ strategy combined with inaugural ten-year and floating rate tranches were creative solutions to manage interest expense in a rising rate environment. In the hyper-competitive US auto finance business, every basis point of savings or cost advantage counts.
In aggregate, the order books from Asian and Europe investors totalled nearly US$3bn, and the strength and depth of these orders allowed HCA to achieve superior pricing and diversification versus their historical issuance and relative to their peers. Their innovative global strategy and new tenors generated many new investors.
Boroch concludes, “Overall, we were able to more fully leverage the Hyundai brand by utilising a global execution strategy to skilfully fund our business. With a true global launch we would be exposed to an additional 12 hours of market risk and require extensive coordination across multiple geographies and stakeholders to manage the day-long transaction process – a marvellous effort from all involved.”
One hundred new investors.
Achieved incredible absolute pricing levels.
Considerable interest expense savings – US$25m on September 2016 financing and US$2.5m on the March 2017 transaction.