Kerry Properties and JPMorgan priced a punchy convertible early on Friday morning last week, securing the Hong Kong property company HK$2.5 billion ($320 million) in the process.
The five year bonds carry a yield to maturity of 3.57% and have a conversion premium of 35% or HK$25.995. The price used on which the conversion premium is made is HK$19.226, or 1% above the price at Thursday's close of trading. The conversion premium is 33.45% above Thursday's closing price. The bonds were issued at par.
The bonds carry no investor put but do have an issuer call at year three if Kerry's shares are trading at 130% of conversion price for a stated period of time. There is no reset conversion price and limited dividend protection for bondholders: Kerry has the right to increase its dividend payouts by 25% a year without compensating the bond holders.
The bonds have a bond floor of 92.9% using a credit spread of 75bp over Libor. Implied volatility is 32%.
Despite these rather punchy terms, the deal was a prestige one to get, given the standing of Kerry Properties in the market. JPMorgan is understood to have won the deal on Thursday afternoon amid fierce competition. It is probably breathing a sigh of relief to have completed the deal without a hitch.
Final allocations saw 75% of the deal go to Europe and 25% to Asia. The deal was said to have been oversubscribed although it is not clear by how much.
The deal will see Kerry able to lock in fixed rate funds for five years before the inevitable rise in interest rates that the market is predicting. It was also able to sell the equity at a 52 week high for the stock, just two days after announcing better than expected results, although the deal will have a dilution effect of 7.5% of Kerry's stock.
With the funds raised, the company is looking to expand its land bank, not only in Hong Kong but also in Macau and mainland China. Given the riches currently being made in the Hong Kong property market and the appetite for new land among the major developers, Kerry will need as big a war chest as possible to compete.
The bonds traded slightly higher on Friday trading at 100%-100.25%.
