Wheelock sold a US$500 million three-year bond on Wednesday, riding on the back of positive market sentiment circulating Hong Kong’s real estate sector.
The subsidiary of Wheelock & Company raised the unrated Reg S-registered note just shortly after Citi purchased space at its new tower block in Hong Kong’s Kowloon district, described by realtors as the largest single office transaction ever undertaken in the former British territory.
Citi paid HK$5.425 billion (US$700 million) in a sale-and-purchase agreement with Wheelock Properties for the East Tower at One Bay East in Kowloon East, which will house most of the US lender’s five thousand staff in Hong Kong.
Additionally, Wheelock successfully outbid developers including Cheung Kong and Sun Hung Kai Properties at a recent land auction held at the end of May to build residential buildings in the Kai Tak development area in Kowloon.
The HK$2.5 billion land sale, a barometer of developers’ long-term confidence in the housing market, received 12 bids from Hong Kong and Chinese developers, according to Hong Kong’s land authority.
Such factors have led to Wheelock successfully securing $500 million worth of funding from the debt capital markets for general corporate purposes, much higher than the $300 million credit analysts anticipated.
“The issuer has a very significant asset portfolio and turnover model,” a source close to the deal told FinanceAsia. “This is one of the reasons why they are able to achieve competitive pricing despite lacking a rating.”
Inexpensive
Despite the fact that some investors have turned more cautious on the broader credit market due to growing concern of an anticipated summer lull and rising US Treasury yields, analysts like Wheelock’s bond given its short tenor, small size and, most importantly, it's cheap, according to Mizuho Securities in a note on Wednesday.
The property company marketed its benchmark bond at an initial price guidance of Treasuries plus 220bp, which is 75bp wider than Wharf’s existing notes expiring in February and November 2017, as well as 30bp and 25bp wider than Wheelock’s outstanding paper maturing February 2017 and March 2018 respectively on a G-spread basis.
In the end, Wheelock managed to price its new bond at Treasuries plus 192.5bp — the tighter end of its final price guidance — offering investors 2bp to 3bp in new issue premium, according to sources close to the deal. The paper has a reoffer yield and price of 2.882% and 99.623 respectively.
“We think the additional liquidity or price discovery created by this new deal, combined with investors’ growing desperation for yield will see the Wheelock-Wharf spread compress…,” Mark Reade, a credit analyst at Mizuho Securities, said. “This in turn suggests that this bond screams value and will ultimately trade as tight as Treasuries plus 175bp.”
Oversubscribed
Wheelock’s bond was five times oversubscribed, obtaining an order book of more than $2.7 billion from more than 180 accounts, according to a source close to the deal.
Asian investors subscribed to 84% of the bonds, while the rest went to Europe, Middle East and offshore US investors, according to a source close to the deal. Fund managers purchased 54% of the paper, followed by financial institutions with 19%, private banks with 14%, and sovereign wealth funds, insurers and others with 13%.
Wheelock and Company is a listed investment company with a 54% stake in Wharf Holdings — one of Hong Kong’s largest property players.
BNP Paribas, DBS, HSBC and Morgan Stanley were the joint bookrunners of the transaction.
Pricing
Elsewhere in Asia’s DCM space, Krung Thai Bank, Thailand’s fourth-biggest lender by market capitalisation, is marketing what would be the country’s first Basel III-compliant Tier 2 dollar bond, according to a source familiar with the matter.
It’s offering the 10.5-year note — callable in year 5.5 — at yield of about 5.5%. Goldman Sachs and HSBC are joint bookrunners of the transaction.
China Hongqiao, the world’s fifth-biggest producer of aluminum in 2013, is selling a three-year note to yield about 8.125%, another person said. Deutsche Bank is the sole global coordinator and joint bookrunner. Other joint bookrunners include ANZ, Barclays, Credit Agricole, Morgan Stanley and Royal Bank of Scotland.
