China Shanshui seals $500m bond

Shandong-based China Shanshui Cement sold a $500 million five-year bond callable in year three late on Wednesday, offering investors substantial pickup in a sector that continues to be structurally challenged.

The B/BB rated Reg S-only offering priced at 98.98% on a coupon of 7.5% to yield 7.75%, according to a term sheet seen by FinanceAsia. Final pricing was 37.5 basis points inside initial price guidance around the 8.125% level.

Order books were oversubscribed by the end of China Shanshui’s Asian roadshow on Tuesday. By 2:30pm Hong Kong time Wednesday they had reached $2 billion, a source familiar with the matter said.

Following the European investor roadshow — which began in London on Wednesday — the banks on the deal decided to price on the same day given the strong feedback. 

"The transaction was ultimately executed within 16 hours [and was] very well-timed, taking advantage of constructive market conditions as well as lack of competing supply," the source said.

The final order book for China Shanshui totaled $4.2 billion spread across 290 accounts, with Asian investors subscribing to 76% of the offering and the rest going into European accounts. Asset and fund managers purchased 74% of the notes, followed by private banks on 16%.

The funds raised will be used by the company to refinance its $400 million senior unsecured notes due 2016, according to a second source close to the deal.

Comparables

Mark Reade, fixed income analyst at Mizuho Securities, said fair value for the China Shanshui bond was around the 7.5% mark when compared to its nearest peers.

The bond is likely to perform well in the secondary market if it prices at 7.6% or better, he said, prior to the pricing of the note.

This is because China Shanshui is well-known to US dollar bond investors and because non-property, non-oil Asian high-yield bonds are relatively scarce, he said.

The nearest comparables for the bond includes China Shanshui’s existing 10.5% April 2017 notes, which traded at a yield-to-worst — the lowest yield an investor can expect when investing in a callable bond — of 4.4%.

Other comparables include West China Cement and Mexico-based global cement company CEMEX, which have bonds maturing in September 2019 and March 2020, respectively, that traded at a YTW of 7% and 7.2%, the second source close to the deal said.

Risky business

Investor sentiment towards the Asian high-yield bond market has somewhat stabilised after a weak start to the year, helping China Shanshui's latest bond issue, which is guaranteed by China Shanshui’s subsidiaries outside China (with the exception of a subsidiary in the US).

On Wednesday, the Bank of America Merrill Lynch Asian Dollar High-Yield Corporate Index inched up to 403.993 from 399.864 a week earlier. The index is gradually trending back towards the all-time high of 407.356 that was registered on September 4.

“We anticipate that cement prices will stabilise owing to increased infrastructure projects in northeast China but weaker property demand will temper the benefits,” Jian Cheng, a credit analyst at S&P, said.

The average selling price of cement has been under pressure since the Chinese property market began slowing down in 2014. 

China Shanshui's cement average selling price slipped to Rmb240.3 ($38.3) per ton in the first half of 2014 compared with Rmb250.5 per ton in the same period of 2013. This was mainly due to a 9.9% price fall in northeastern China and a 4% decline in Shanxi province.

The average selling price in Shandong, Shanshui's core market, was stable at Rmb240.6 a ton. Nonetheless, in its prospectus China Shansui warned that the average selling price of its cement and clinker products had further decreased since October-end, weighing on revenues.

The company was established in 2001 and in 2006 the company listed on the Hong Kong Stock Exchange, where its current market capitalisation is around HK$15.5 billion ($2 billion). 

Bank of China International, Credit Suisse and Morgan Stanley were the joint global coordinators and bookrunners on the transaction.