A graceful $400 million deal for Agile

HSBC and Morgan Stanley re-open China's non-investment grade market with a massively oversubscribed deal for Agile Property Holdings.
HSBC and Morgan Stanley priced the largest high-yield offering of an Asian property developer on Friday night when they completed Agile Property HoldingsÆ $400 million 7-year non-call 4 Reg S/144a debut deal.

The Ba3/BB rated deal represents the largest Chinese high-yield bond offering since 2004, and was the first Chinese high-yield deal to price since April when Ocean Grand Holdings was downgraded.

The leads were able to complete pricing at the tight-end of the revised 9%-9.25% price guidance and were able to translate a huge order book into a final deal size that was increased from $350 million to $400 million.

The leads ran roadshows in Singapore, London, Boston, New York, and New Jersey. Guidance was initially announced at 9.25%, but was tightened on the back of enormous demand.

Final pricing was at par with a coupon of 9%, equivalent to 425.7bp over comparable US Treasuries.

The order book closed in excess of $2.2 billion or 5.5 times oversubscribed and garnered significant global demand.

Geographically, the deal was sold 46% into Asia, 26% into Europe and 28% into the US. By investor type, funds bought 65%, banks 16%, private banks 13%, insurance and pension funds took 4%, with 2% going to others.

Bankers have quoted fellow Chinese developers Hopson Development and Shanghai Real Estate (SRE) as the optimal comparables to Agile.

Hopson has a $300 million 7-year, non-call 5 deal that matures in 2012. That deal is rated Ba2/BB+ and is quoted at a price of 99%-99.5% or a yield spread of 8.33%-8.23%.

While SRE has a $200 million April 2013 issue rated B1/BB- which was trading at a price of 94.25%-94.75%, a yield spread of 9.83%-9.72%.

The Agile deal prices inline with market expectations, which estimated fair value to be in the low-9s.

Bankers expected that given AgileÆs year longer maturity and its one notch lower rating, it would price wider than Hopson, but inside Shanghai Real Estate due to its better rating and financial profile.

The funds will be used to further fund AgileÆs expansion and growth plan.

The noteÆs structure will help to improve the matching of AgileÆs cashflow requirements and debt maturity profile with its expansion plans.

Of the total $300 million, approximately $290 million will be used to finance the acquisition and development of land that it has signed the land grant or transfer documents for but has not obtained the land use right certificates.

Explicitly, $160 million will go towards financing the Chengdu Shuangliu project; $65 million will go to the Nanjing Qinhuai project; and a further $65 million will go towards the Heyuan project. The remaining proceeds will go towards general working capital.

AgileÆs land bank was acquired when land was relatively cheap and is useful given the introduction of increasingly competitive bidding structures on the Mainland. It also provides welcome earnings visibility.

Agile has a current land bank of 8.3 million square metres, which will increase to 14.7 million square metres once it concludes other land grants and transfers that it has entered into. Comparatively, Hopson has a land bank of 12.7 million square metres, while SRE has only 1.4 million square metres.

Compared to Shanghai and its environs, house prices in Guangzhou have been far more stable, rising 20% compared to 90% in Shanghai. Also giving investors comfort, is AgileÆs familiar business model, complete with extensive marketing and advertising activity. The result is high margins per square metre.

Agile enjoys huge brand awareness in Hong Kong, where it is one of the largest advertisers on Chinese language TV and is said to have targeted Hong Kong property buyers from the beginning of its operations in 1992. It is primarily known for building retirement and holiday homes across the border and started in Zhongshan, before expanding into the Guangzhou property market in 2000 and Foshan in 2001.

As at July 1, it had 26 development projects in major cities in the Pearl River Delta region, including Zhongshan, Guangzhou, Huizhou, and Foshan.

Agile develops a range of properties, such as villas, duplexes, apartments and condominiums. It is also engaged in the development of commercial properties, including retail shops and commercial complexes. In total, Agile has 9% of its assets in retail, 45% in villas and townhouses, and 46% in apartments.

As disposable income levels have risen on the Mainland, the percentage of Hong Kong and Macau-based buyers has dropped to about 30% of the total. Average income per capita is now higher in Guangzhou than either Shanghai or Beijing, reaching Rmb19,592 ($2,400) in 2004 compared to Rmb18,503 ($2,300) and Rmb17,116 ($2,150) for the other two cities.

Last year, Agile reported total revenue of HK$5.25 billion ($675 million), with a net profit margin of 18.3% and an operating margin of 27.3%.
¬ Haymarket Media Limited. All rights reserved.
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