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China State Grid Considers Dollar Bond Amid Overseas Expansion

May 8 (Bloomberg) -- China State Grid Corp. is planning a sale of U.S. dollar-denominated securities amid speculation the company is considering adding to purchases of overseas assets.

China State Grid, the nation’s biggest electricity distributor, hired nine banks to help arrange a series of fixed-income investors meetings in Asia, Europe and the U.S. from today, a person familiar with the matter said, asking not to be identified because the details are private. The state-owned power supplier was among firms considering buying a stake in Powerco Ltd., a New Zealand electricity and gas provider, people with knowledge of the matter said last month.

Average yields for utility companies in Asia outside of Japan dropped to 4.8 percent as of yesterday from 5 percent 12 months ago, JPMorgan Chase & Co. indexes show. The decline in U.S. Treasury yields, which this month slid to their lowest levels in 2013, has helped bring down borrowing costs for companies, according to Nomura Holdings Inc.

“Companies like State Grid of China tapping the market will persist for some time,” said Pradeep Mohinani, a Hong Kong-based managing director at Nomura. “The pipeline of state-owned enterprises looking to come to the market is very deep.”

China State Grid selected lenders to help manage a possible sale of a Reg S dollar bonds, the person familiar with the matter said. Standard & Poor’s assigned a AA- rating to the proposed notes, according to an e-mailed statement. Moody’s Investors Service ranked the company Aa3 today, citing expectations of “very high” support from the Chinese government. That’s the fourth-highest investment grade for both risk assessors.

Asset Purchases

The company was said last month to be among the possible buyers of a 42 percent stake in Powerco. The target utility supplies electricity for 320,000 homes on New Zealand’s North Island and gas to about 100,000 customers, according to its website. The New Plymouth-based distributor has arrived at a shortlist of bidders for the stake and China State Grid may still be in the running, the Australian Financial Review reported May 6, without citing anyone.

China State Grid said in November it agreed to acquire 41.1 percent of Adelaide-based ElectraNet Pty for an undisclosed amount. The company announced in May last year it bought seven power transmission lines in Brazil for 751.7 million euros ($984 million).

Credit Risk

The cost of insuring corporate and sovereign bonds against non-payment in the Asia-Pacific region fell, according to traders of credit-default swaps.

The Markit iTraxx Australia index decreased 1.5 basis points to 96.25 basis points as of 10:24 a.m. in Sydney, according to Westpac Banking Corp. prices. The measure is down 9.7 basis points this month and is trading at levels last seen in November 2010, according to data provider CMA.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell 1 basis point to 100 as of 8:16 a.m. in Singapore, Westpac prices show. The benchmark, which has ranged from 99.9 basis points to 122.3 basis points this year, has has fallen 7.5 basis points in May, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Japan index dropped 2 basis points to 77 basis points as of 9:26 a.m. in Tokyo, according to Deutsche Bank AG prices. The gauge is on track for its lowest close since May 21, 2008, according to CMA.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

To contact the reporter on this story: Kristine Aquino in Singapore at kaquino1@bloomberg.net

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net

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