ôWe saw a period of stability ahead of the FOMC meeting in the early part of the week," says one source. "Most people were expecting a 25bp cut in the Fed rate on Wednesday, and probably a relief rally following that, which allowed the execution of the deal. This market is all about finding a window, and when it opens, you need to jump in."
Market commentators agreed that the equity sweetener was essential to getting the deal done by an issuer from the supply-heavy Chinese property sector ûespecially in this market. Playing in the issuerÆs favour was its 17-year track record, a strong and credible management team and a strategic shareholder (22.7%) in the form of Shenzhen Investment Holdings Limited, which is owned by Shenzhen Municipal Government. This implies strong relationships with municipal and regional authorities. In addition, the company enjoys a broad geographical diversity across six major economic areas in China.
Moreover, the covenant package included a fixed-charge coverage ratio - a measure of firm's ability to meet its fixed-charge obligations - mandated to increase to 2.5 times in 2009, 3.25 times in 2010 and 3.5 times after that. It also stipulates an interest reserve account, requiring Coastal Greenland to maintain at least one interest payment in the account for the time the bonds are outstanding.
The deal priced with an approximate IRR (or total yield) of 14%, assuming a volatility of 38, although some commentators noted that the valuable re-set feature for the warrants implied an IRR closer to 15%. Comparables quoted by bankers include China Properties (B1/B+) and Neo-China (B1/B+) which were both trading at 11.7%, and Shanghai Zendai (B2/B+) which stood at 12.02%.
ôThe deal priced relative to these, with some premium for both the ratings differential and for the new supply in a challenging market and corporate sector,ö says a source close to the deal.
The bonds were issued with 74,415 five-year detachable warrants for every $100,000 bonds purchased, at a strike price of HK$2.46, or a 10% premium to the five-day volume weighted average price of the share prior to the date of issue.
The $100 million transaction is the first tranche of a $150 million deal. The second $50 million tranche - the result of an equivalent order from Shenzhen Investment Holdings Limited - will price subject to approval by Coastal International (the majority shareholder of Coastal Greenland) during an extraordinary general meeting, which still needs to be called. This could take up to 60 days (leading HSBC to go ahead with the first tranche while market sentiment allowed).
Should the purchase be approved, the second tranche will be issued at the same terms and will become fungible. Otherwise the warrants û which would have been accruing to Shenzhen Investment û will roll back to the existing bond holders.
The final order book, including the $50 million order from Shenzhen, amounted to $202.78 million. Demand for the $100 million tranche totalled $152.78 million. A total of 17 investors participated in the deal, with 57% of the bonds selling to banks, 33% to corporates, and 10% to banks. Ninety per cent of the bonds sold to Asian accounts, with the remainder allocated to Europe.
On the secondary market, the bonds were yesterday trading at a bid of 93.75, having been delivered at 93, while the bonds-with-warrant package û issued at par - was trading at 102/102.5 bid.
$77.5 million of the proceeds will go towards redeeming the company's 2008 senior notes, while the remainder will finance property acquisitions.
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