Asia’s dollar bond issuers have gotten away with razor-thin new issue premiums this year, making the most of buoyant liquidity after a slow-down in bond buying late last year. But when Chinese property company Shui On Land came to the market at the start of this week, it offered a double-digit premium to investors.
That looked a wise choice, helping the company generate a whopping $3.3 billion of demand for its bond. This was despite rising doubts about the Chinese property sector — and the likely supply that could hit the dollar market later this year.
Chinese regulators have stamped down on domestic bond issuance by property companies, hoping to stem a house price bubble in the country. That should encourage more dollar bond supply. At the same time, regulators are taking a brighter view of dollar issuance from all Chinese companies, hoping that more dollar bond issuance from Chinese companies will help stem the depreciation of the renminbi, said a senior debt banker in Beijing.
Shui On, controlled by Hong Kong property tycoon Vincent Lo Hong-sui, made the most of the situation this week, raising $500 million from a four-year bond.
That was an unusual maturity in Asia’s bond market, where corporate borrowers typically stick to three or five-year bonds. But the choice of maturity helped the company keep its funding costs down.
“The new print was an investor-friendly one, offering a new-issue concession between 12.5bp to 25bp over its outstanding 2019 bond,” a source familiar with the deal said. “The issuer decided to do a four-year structure in order to avoid paying a hefty concession for a five-year note.”
The best comparable was Shui On’s outstanding $250 million 4.375% October 2019 bond, which was trading on a cash price of 99.0 to yield 4.77% before the latest deal was launched, according to a syndicate banker.
The group has at least three dollar bonds that will mature or become callable this year, including a $500 million 10.125% perpetual bond that is callable in December, a $550 million 9.625% five-year note that is callable in June and a $500 million bond maturing in November, according to Dealogic.
The company will consider all funding options to refinance these outstanding bonds, a banker familiar with the company said.
Steady secondaries
The Hong Kong-listed property group, which made its name by building the iconic Xintiandi project in Shanghai, followed more than $3.3 billion worth of dollar issuance from Chinese companies so far this year.
Shui On went out with an initial price guidance at 6.25% area, before pricing the deal at 5.875%. The February 2021 bond was priced at 99.384 on a coupon of 5.7%, according to a term sheet seen by FinanceAsia.
On Tuesday afternoon, the 2021 bond was trading up at a cash price of 99.4/99.45.
Some 148 investors participated. Asian investors took 88% of the deal, while 12% went into European accounts. Fund managers accounted for 68%, private bank 30% and banks and corporates 2%.
Standard Chartered is the sole global coordinator, while Deutsche Bank is a joint bookrunner.
