Chinese real estate developer Golden Wheel Tiandi raised $100 million from its first offshore bond offering on Tuesday.
The B/B rated deal originated from reverse enquiry demand and was launched off the back of the positive sentiment generated by the International Monetary Fund's decision to add the Renminbi to its reserve currency basket.
It represents the fourth offering from a Chinese homebuilder in the past few weeks after B1/B+ rated Future Land ended the recent hiatus in the Asian high-yield market with a $250 million two-year deal.
However, there was a very big difference in the reception to the two deals. Whereas Future Land was able to attract an order book of $2.5 billion, Golden Wheel managed a far lesser $250 million.
This meant it was not able to tighten pricing beyond initial guidance and also raised funds at the lower end of an expected $100 million to $150 million range.
Final pricing was fixed at 99.555% on a coupon of 9.5% to yield 9.75%.
Syndicated bankers on the Golden Wheel transaction said the closet comparables were Future Land’s recent 6.25% 2017 bond and one notch lower rated B3/B- rated Powerlong Real Estate’s 7.625% 2018 bond. They were respectively yielding 6.64% and 8.05% on Tuesday.
Future Land is still trading above its 99.079% issue price on a mid price of 99.30%. Powerlong has slipped below its issue price of 99.017% to trade around the 98.90% mark.
“Investors look at absolute return rather than relative bonds in the high-yield universe, so figuring out the new-issue premium and other metrics are irrelevant here,” said one syndicate banker.
A second banker argued that “the overall market sentiment was pretty supportive of Golden Wheel’s deal following the IMF's move. It effectively anoints the Renminbi as a major reserve currency."
The banker added that, while order books were declining in size, investors still remain keen to buy Chinese property credits given growing signs of a mild recovery in the country’s residential market, in part due to a slew of easing measures.
Since late August, local units of foreign companies and expats working and living in China can buy properties for their own use, removing a ban introduced in 2006 on property purchase by foreigners.
Golden Wheel is currently working on six projects in Nanjing, Wuxi, Yangzhou and Zhuzhou. The company scheduled pre-sale of the projects in the third quarter of 2015, with delivery from 2016 onwards.
“We expect the Nanjing-based property developer's EBITDA interest coverage ratio to drop below 1.0x in 2015, due to the continual debt increase to support expansion and the absence of new projects for delivery this year,” analysts at Standard and Poor’s wrote in a note to clients on Tuesday.
In a statement to the Hong Kong stock exchange, Wong Yam Yin, chairman of Golden Wheel, said the company plans to use proceeds from the bond deal to refinance outstanding debt and fund new property projects as well as for general corporate purposes.
Golden Wheel went public through a Hong Kong listing in January of 2013, raising $98 million from the share sale, according to data tracking company Dealogic. The company also sold two dim-sum bonds in 2013 and 2014, raising a combined $145 million.
The company’s gearing ratio rose to 38.1% in June this year, up from 33.7 in December of 2014, according to its interim results.
BOCI, HSBC and Haitong International are the bookrunners of the dollar-denominated bond deal.
