Grand China Air (Hong Kong) sold a $300 million two year bond that is callable in year one late on Tuesday, its debut in the dollar space as investors look to hold the issuer’s latest high-yielding unrated bond.
The Reg S-only offering priced at 5.5%, which is 25 basis points tighter than its initial price guidance area of 5.75%, according to a term sheet seen by FinanceAsia.
“The issuer demonstrated in the past that it can get access to the market without a rating,” said a source close to the deal, who added that books were growing north of the $200 million mark by Tuesday noon Hong Kong time. “It’s doing the same here.”
Privately-owned Grand China’s latest bond is offering a fat pickup compared to its nearest comparables, which includes the company's own outstanding Singapore dollar-denominated note and partner Hainan Airlines’s outstanding offshore renminbi paper, the source said.
Grand China’s 2017 S$250 million ($182 million) bond traded at a cash price of 99.45 in early Tuesday trade in Hong Kong. This translated into a US dollar-equivalent of Libor plus 450bp — a pick up of 15bp that includes a new issue premium, according to the source.
Publicly-listed Hainan Airlines’s 2017 renminbi issue, meanwhile, traded at a cash price of 98.75 for a dollar equivalent of Libor plus 280bp, indicating that investors were able to reap an extra 145bp or so from Grand China's latest issuance.
The significant spread difference between Grand China and Hainan Airlines reflects the fact investors are more familiar towards the latter since it is listed on the Shanghai Stock Exchange and has previously tapped both the US dollar and offshore renminbi bond markets for funding.
Growing presence
Grand China’s presence in mainland China is nonetheless growing. The firm recently bought a 4.89% stake in Hainan Airlines from Hainan Development Holdings for Rmb1.9 billion ($310 million), according to a statement to the Shanghai Stock Exchange in January. Grand China’s stake in the airline company rose to 34.84% after the purchase, which was finalised in December.
The proceeds of Grand China’s dollar bond offering — which is guaranteed by its parent Grand China Air and Hainan Airlines — will be used for working capital and other general corporate purposes. This includes the purchase of aircraft, aviation and other transportation equipment, and fuel in compliance with State Administration of Foreign Exchange’s (Safe) requirements, the company’s bond prospectus said.
Grand China is owned by Grand China Airlines Holding — a joint venture between the Hainan provincial government (48.6%), Hungarian-born billionaire investor George Soros (18.5%), and Hainan Airlines’s parent HNA Group (32.8%).
Unrated bonds in Asia ex-Japan continued to appeal to select issuers, notably repeat issuers that look to raise relatively small-sized amounts via this less cumbersome route.
According to Dealogic data, some $2.4 billion has been raised by these types of deals so far this year, slightly down from last year’s $2.57 billion over the same period. Taiwan-based financial institution Cathay United Bank was the last issuer to raise an unrated bond, pricing a $180 million 30-year offering on Monday.
DBS was the sole global coordinator and bookrunner of the transaction.
