CAR Inc kicked open doors for lower-rated Chinese credits on Wednesday by selling the country's first junk bond issue of the year as choppy markets stabilised.
The maiden $500 million five-year high-yield bond callable in year three priced at 6.375%, some 60 basis points tighter than its initial price guidance area of 7%, according to a term sheet seen by FinanceAsia.
CAR's bond achieved a whopping orderbook in excess of $7 billion from 340 accounts, according to a source close to the deal. Fund managers subscribed to 85% of the paper.
The Chinese car rental company had been stuck on the sidelines as Asian high-yield bond markets began the year in poor form, spooked by Chinese property concerns after developer Kaisa defaulted on some of its debt and by growth worries as crude oil prices tumbled below $50 a barrel.
But with conditions improving the company formerly known as China Auto Rental was finally able to move forward with its 144A/Reg S offering.
On Tuesday, the Barclays Asia high-yield index climbed another 70bp to 147.9. Chinese property names edged up a further 1bp to 1.5bp, according to credit research firm Lucror Analytics.
Investor meetings for the Chinese car rental company – the first Asian issuer to announce a roadshow – began in Hong Kong on January 5 and 6, followed by Singapore on January 7 and 8. The firm also visited London, New York, Boston and Los Angeles after the Lion City.
CAR’s bond, rated Ba1/BB+/BB+, follows Delhi International Airport’s debut dollar-denominated bond on Tuesday, which essentially reopened Asia's high-yield market. The company, which sold the region’s first junk note in two weeks, priced a $288.75 million seven-year Reg S deal.
Excluding CAR’s offering there have only been two Asian dollar-denominated high-yield transactions worth a combined $527 million so far this year, according to Dealogic data. This is significantly lower than the corresponding 13 deals worth $4.9 billion seen during the same period last year.
Funding expansion
CAR's bond proceeds are earmarked for capital expenditure and other general corporate purposes, including refinancing of outstanding indebtedness in order to enhance its capital structure, according to a source familiar with the matter.
CAR’s Asian debt debut follows its recent share flotation. In September, the company raised $468 million after selling 426.3 million primary shares at HK$8.50 ($1.10) per unit.
Such capital-raising activity is warranted as the company is in the midst of bulking up its operations. On January 27, CAR announced it had entered into the chauffeured car business via a collaboration with UCAR, an independent third-party service provider.
Under the agreement, UCAR will rent cars from CAR on both long-term and short-term bases and be responsible of hiring drivers and other tasks. The chauffeured car service will be co-branded, allowing UCAR to leverage CAR's strong brand awareness, fleet size and geographic coverage to compete with other players.
Comparables
The nearest comparables for CAR’s bond includes global car rental players like Hertz and Avis and local competitors such as Geely, all of which have bonds outstanding that mature in October 2022, April 2023, and October 2019, respectively.
Those notes traded at a yield-to-worst – the lowest potential yield that can be received on a bond without the issuer actually defaulting – of 5.85%, 5.25% and 4.9%, respectively, according to a source familiar with the matter.
“[We like this deal] based on its sizeable pick-up to the likes of Geely and our expectation of solid support from Asian investors, who remain cashed up and eager for opportunities to diversify away from China property, and oil and gas,” said a Hong Kong-based credit analyst. “While CAR Inc’s limited track record certainly warrants a premium to the likes of Geely, the company’s high profile equity sponsors should help to drum up plenty of support for this deal.”
CAR is the top car rental company in China with a 31% share of the short-term self-drive market as at end-2013.
The company’s key shareholders include state-owned investment holding company Legend Holdings, private equity firm Warburg Pincus, the world’s second-largest car rental company Hertz, and its chairman, founder and chief executive officer Charles Lu. These parties each have stakes of 29.2%, 18.3%, 16.2% and 14.8%, respectively.
Credit Suisse and Standard Chartered were the joint global coordinators and bookrunners of the transaction. The other joint bookrunner was Deutsche Bank.
