Guangzhou-based China Aoyuan Property Group raised $250 million from the dollar-denominated bond market on Monday, achieving tight pricing thanks to a supply/demand imbalance in offshore Chinese credit.
The B2/B1/B+ rated property developer captured a sizable order book of $2.1 billion for its Reg S deal, suggesting demand for Chinese assets remains as strong as ever.
The three-year issue represents the first Chinese deal in more than two weeks. It follows on the heels of Hanghzhou-based Greentown China, which sold a $400 million 5.5% perpetual bond in late March.
Hong Kong-listed Aoyuan seized a funding window after JP Morgan’s B-rated Asian Bond Index fell to 7.86% on April 15, its lowest level in 17 months.
Syndicate bankers said the company decided to raise offshore funds for re-financing needs. It currently has two dollar-denominated bonds outstanding and one is likely to be called next January due to its high coupon.
"Aoyuan wants to keep an open window for offshore funding," one banker commented.
The company, which made its first foray into the Australian property market last year, initially marketed its new deal around the 7% area. This was then tightened to 10bp each side of 6.625%.
Final pricing for a B3/B+ rated April 2019 issue was fixed at par to yield 6.525%, according to a term sheet seen by FinanceAsia.
Bankers said the closest comparables are its existing $250 million 10.875% May 2018 bond and January 2019/call 2017 bond. These were respectively yielding 6.474% and 6.15% on Monday.
This means the new deal has offered a 5.1bp yield pick up for a one-year maturity extension, which is aggressive given there is a 32.4bp curve between the 2017 call and 2018 maturity.
However, one Hong Kong-based fund manager said the deal should be well received due to limited supply and increasing redemptions.
He also added that, "the company’s strong contracted sales provides further confidence and may lead to a ratings upgrade.” The company is on positive outlook from Fitch.
In a statement to the Hong Kong stock exchange, Aoyuan chairman Guo Ziwen said the group plans to use proceeds to refinance iexisting debt and for general working capital purposes. It will be listed on Singapore stock exchange.
Joint global coordinators were: Bank of America Merrill Lynch, Deutsche Bank and UBS, while ABC International, Credit Suisse, Guotai Junan International were joint bookrunners.
Chinese property developers have been almost exclusively raising funds back home since the middle of last year, after the mainland authorities relaxed onshore funding rules.
Aoyuan itself raised Rmb2.4 billion last July from a 2018 bond that carries a 5.8% coupon. This was significantly cheaper than the 11.25% coupon on the dollar denominated bond it had issued offshore only two months earlier.
Collectively, the country's house builders raised $102 billion onshore in 2015, compared to $35 billion the previous year, according to data tracking firm Wind.
However, notwithstanding a favourable liquidity backdrop, Dalian Wanda Commercial Properties called off its proposed Rmb 6 billion domestic bond issue last Friday. It has prompted questions whether the country's largest shopping mall developer could not get the pricing it wanted, or the amount of capital it needed.
The company, controlled by Asia’s richest man, Wang Jianlin, has not given an explanation for the cancellation.
Parent company Wanda Group, a property-to-football club conglomerate has also said it plans to take its Hong Kong-listed commercial arm private after only listing 15 months ago. Wanda Commercial raised $3.72 billion in December of 2014, making it Hong Kong's largest IPO that year and the largest real estate IPO globally.
