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It was another frantic start to the week for debt syndicate desks, as three borrowers launched new deals yesterday. Citic Pacific and Sunac China Holdings injected vitality into a moribund high-yield sector, while Lifestyle International added to the constant flow of investment-grade issuance.
Citic Pacific returned to the bond market for the second time this year with another $750 million issue. The Hong Kong-based conglomerate, whose business operations span across iron and steel, infrastructure and property had already tapped investors for 5.5 year money in March after also raising $750 million in a 10-year deal in April 2011.
It is now becoming a regular borrower, having shunned the markets for a decade. But, low absolute yields and flush investors are tempting many financial officers to lock in cheap long-term funding.
The lead managers quickly received an enthusiastic response from investors and settled on final price guidance of 6.85%, plus or minus 5bp yesterday afternoon. The senior, unsecured notes are rated Ba1 by Moody’s and the equivalent BB+ by Standard & Poor’s.
The valuation process was made fairly simple because Citic Pacific has two other outstanding issues that have both performed well since their launch, according to a banker familiar with the transaction. It was then only necessary to determine an appropriate new issue premium after extrapolating fair value from the yield curve.
The company’s 2018 notes were trading at 105.25 with a 5.7% yield and its 2021 issue yielded 6.2% with a dollar price of 102.63. In the end, the size and strength of the order book meant that Deutsche Bank and UBS, the active bookrunners (HSBC and Standard Chartered took a more passive role), could concede a negligible new-issue premium.
The deal attracted 250 orders worth more than $7 billion, but Citic Pacific wasn’t tempted to increase the issue size, said the banker.
The issue was sold under regulation S which precluded the participation of onshore US investors, and was drawn from the company’s euro-medium-term-note programme. Most of it was sold to Asian accounts (87%) and the rest was placed in Europe. Yield-hungry private banks took more than half the deal (52%), and institutional fund managers bought 36%, commercial banks and insurers 5% each and others 2%.
The notes pay a 6.8% semi-annual coupon, with the first payment on January 17, 2013 and were re-offered at par. As an indication of the support for Asian credits in recent months, Citic Pacific’s five-and-a-half-year deal transacted in March had been launched with a 6.875% yield. The final maturity date for the new notes is January 17, 2023.
At the break last night, they immediately traded higher and were bid at 101.
Sunac China
Meanwhile, Sunac China Holdings tried to put its embarrassing history behind it with a successful five-year non-call-three transaction. In March 2011, the Chinese property developer had to abandon a planned dollar issue after irregularities in its presentation to Hong Kong investors. At the time, the finger of culpability was pointed at Goldman Sachs for introducing previously undisclosed financial projections, although there were also reservations about the chequered past of Sunac’s chairman.
Goldman was absent from the list of joint-bookrunners for yesterday’s $400 million deal, which was led by Deutsche Bank, Bank of America Merrill Lynch, Citi, Morgan Stanley and UBS.
However, the company had to pay a hefty 12.5% yield, despite a BB- rating from Fitch — although it is rated a notch lower at B+ by S&P. According to a banker, the order book for the Regulation S issue exceeded $2 billion.
The cash will be used to finance land purchases and for other corporate purposes.
Lifestyle International
In contrast, Lifestyle International has had an easy journey into the bond markets. Yesterday, it raised $300 million from a 10-year issue managed by Bank of America Merrill Lynch, J.P. Morgan and Standard Chartered, after a successful five-year debut in January.
The issuing vehicle was LS Finance, guaranteed by Lifestyle International Holdings, the Hong Kong retail operator that owns the Sogo department store. The notes pay a 4.25% coupon and were re-offered to investors at 99.188 to yield 4.351% to a maturity date of October 16, 2022. That was equivalent to a spread of 265bp over the US treasury 10-year benchmark yield.
Like Citic Pacific and Sunac, the senior notes were sold under Regulation S and attracted a strong Asian bid. The issue is rated Baa3 by Moody’s and BBB+ by Fitch.
