The Reg-S transaction generated an order book of $270 million with sole bookrunner HSBC allocating bonds to 42 investors. Sixty-nine percent of the bonds sold to Asia, and 31% to EMEA. In terms of investor type, 56% sold to fund managers, 32% to banks, and 12% to insurance and pension funds.
"It's a really good deal for the market, and the bonds have held up on the secondary market, but I don't think there will be a flurry of high-yield issuers tapping the market as a result. It seems that a lot of them are waiting for the new year, in the hope that markets will improve some more. And the way things are looking right now, they might end up paying less,ö says one source.
HSBC initially announced a deal size ranging from $150 million to $175 million, prior to releasing a guidance of 9.25%, and eventually managed to raise $170 million. Of the total, $80 million of the proceeds will be used to refinance short-term debt, $50 million for China retail expansion, and the remainder for general corporate purposes.
ôThe company decided to close the deal at $170 million. ItÆs a balance of how much short-term debt you want to pay down,ö says a source familiar with the deal.
ôThis company has a reasonable degree of gearing, so itÆs not an easy story to sell. I thought they werenÆt going to make it,ö says another source not involved in the deal. ôBut many investors who had been buying similarly rated bonds in the private space due to their higher returns, have been told as a result of subprime to stop buying private paper due to its illiquid nature. Therefore, it looks like they turned to Hang Fung, a more liquid asset, to park their money.ö
Also, many investors were keen to get exposure to a Chinese credit that wasnÆt property, which remains unpopular due to the overhang of supply. China retail is a sought-after sector.
The bonds are trading in the range of 100.25 to 100.375, having priced at par.
Furthermore, like Kexim, Hang Fung also benefited from a market window that saw a substantial improvement in market sentiment following the US payroll numbers, and the FOMC meeting.
The bonds are rated Ba3 by MoodyÆs, while Standard and PoorÆs stated in a report released yesterday that it had assigned the issue a BB rating. ôThe long-term credit rating reflects [the company's] fair underlying credit quality, which is affected by the execution risks associated with the companyÆs expansion plan, the competitive and fragmented market in which it operates, the companyÆs narrow business focus, and some asset-concentration risk,ö writes credit analyst Ryan Tsang.
This is offset, continues the report, by Hang Fung's strong underlying liquidity and low inventory risk, a vertically-integrated business model, good brand image, and strong growth prospects in China.
Nonetheless, Hang Fung's aggressive expansion plans pose some concerns. The company plans to increase its retail outlets from 135 to more than 300 by 2009 through debt and franchise arrangements, in order to meet the surge in purchasing power of Chinese consumers.
However, the company holds HK$700 million worth of gold assets which can be easily converted into cash if required, and enjoys a strong underlying liquidity position with HK$200 million in cash. This is against HK$526 million in debt maturing over the next 12 months, according to Standard and Poor's.
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