Henan-based property developer Central China Real Estate last night priced a $400 million five-year high-yield bond, breaking a brief halt in US dollar bond issuance. Asia debt markets have taken a bit of a breather during the past week, thanks to volatile US Treasury yields and underperformance of recent bond issues.
Central China Real Estate is one of the smaller developers in China, but it benefits from sponsorship from Singapore’s CapitaLand. The initial guidance was released at the 6.75% area late Wednesday morning. As the bookbuilding started a bit later due to the “black” rainstorm warning in Hong Kong on Wednesday morning, it took more time for the leads to go out with revised guidance. The bonds, which are callable after the third year, eventually priced to yield 6.5%, at the tight end of the 6.5% to 6.625% final guidance.
The deal attracted an orderbook of over $1.5 billion from 104 accounts. Fund managers were allocated 57%, private banks 36% and banks and other investors 7%
Earlier in the week, two Chinese real estate companies — Powerlong and Fantasia — had chosen to issue offshore renminbi bonds. More Chinese companies are expected to take advantage of investor demand for dim sum debt amid expectations than the renminbi will strengthen.
However, Central China Real Estate (Ba3/ BB-) was using about $330 million of the proceeds to fully redeem its 12.25% US dollar senior notes due in 2015 — so it made sense to issue in dollars. Those bonds were issued in October 2010 and its latest bond offered the company the opportunity to reduce the coupons by about half. The rest of the proceeds will fund new and existing property projects and for general corporate purposes.
The US dollar market also offered the company the ability to print a deal of reasonable size. In contrast, Fantasia (B1/BB-) had issued a Rmb1 billion ($163 million) three-year bond to yield 7.875% while Powerlong (B3/ B) had issued a Rmb800 million ($130 million) three-year bond to yield 9.5%.
The company’s outstanding seven-year bonds, which it sold earlier this year, were yielding 6.9% before the deal was announced and its new five-year bonds priced about 40bp inside of those. According to a source, this is roughly flat to its curve, based on the spread between five- and seven-year bonds.
The deal offered a $0.25 private banking rebate. The bonds are callable on June 4, 2016 at 103.25 and on June 4, 2017 at 101.625. There is an equity clawback at 106.50 until June 4, 2016.
DBS, Deutsche Bank, J.P. Morgan, Morgan Stanley, Nomura and UBS were joint bookrunners.
