Agile Property Holdings yesterday raised $300 million from a high-yield, seven-year bond issue that defied the challenging conditions that are plaguing both the debt and equity markets at the moment to achieve an order book of almost $1 billion.
The company never moved away from its initial guidance of around 10.5% and priced the deal with a 10.5% yield. This was roughly on par with fellow Chinese property developer Shimao Property, whose similarly rated 2016 bonds were trading at a yield of about 10.25% at the time of pricing.
However, the re-offer price was set well below par -- at 97.562 -- which allowed Agile to cap the coupon at 10% and reduce its annual interest costs somewhat. The bonds are callable after four years.
Observers said they felt the price was fair, both against other comparable issues and against the company's own outstanding 2013 bonds, which was also evidenced by the fact that they traded up slightly in the secondary market yesterday. At one point they were bid as high as 98.75, according to one source, but by the end of Asian trading they had slipped slightly to 98.125 -- a little more than 0.5bp above the re-offer price.
At the time of pricing, Agile's existing bonds were trading close to par at 99, resulting in a yield of about 9.3%. Based on that, and after taking into account the longer maturity, Agile was paying a new issue premium of about 25bp, one source said.
Investors also appeared happy with the fact that Agile came significantly inside Country Garden's 11.75% five-year bond which re-opened Asia's high-yield market in early September after a drought of 14 months. The yield on those bonds had widened to about 12.5% at the time of Agile's pricing in the early hours of the Hong Kong morning yesterday, partly as a result of the difficult market environment over the past week, as investors have been rattled by yet another high-profile financial bankruptcy in the US and, closer to home, comments by Fitch Ratings Agency suggesting that the Chinese property market is close to overheating. A heavy corporate issuance calendar, especially from Indonesia, and Country Garden's decision to tap the market for another $75 million on top of the initial $300 million deal size a few weeks later have also contributed to the weakness, say market watchers.
But analysts noted that Agile's stronger ratings -- it is rated Ba3 with a positive outlook by Moody's and BB by S&P, versus Country Garden's Ba3 (negative) and BB- ratings -- as well as its track record and consistently good performance support the tighter pricing. Country Garden's bond sale in September was its first foray into the US dollar bond market.
"There are not many names that could have got done this week, but Agile is probably in the top three among the Chinese property companies and has quite a lot of support," one source noted.
Moody's said in a ratings noted earlier this week that is expects Agile to "maintain discipline and prudence in financial management as well as uninterrupted access to both onshore and offshore bank loans, while pursuing further land acquisitions" and added that the company's overall rating profile "continues to compare favourably against its Ba3 peers".
The transaction attracted more than 100 accounts, which is quite a lot for a deal size of just $300 million. The company had initially indicated that it may sell up to $400 million worth of bonds, but that was back when it may have hoped the market would hold up and allow it to achieve a slightly better price. Joint bookrunners Bank of America Merrill Lynch and HSBC maintained flexibility with regard to the size when the bookbuilding started on Tuesday, but when they set the initial guidance early Wednesday in Asia, the size was fixed at $300 million.
The roadshow visited all three time zones, starting with Singapore and Hong Kong on Wednesday and Thursday last week, followed by London, Boston and New York over the next three days. However, the majority of the deal, or about 55%, was allocated to Asia-based accounts, while US investors bought 25% and European accounts took 20%.
In terms of the types of funds, the participation from private banking investors (and others) was quite strong at 26%. However, most of the bonds (55%) went to funds, 12% were bought by insurance companies and 7% went to banks.
Agile, which develops large-scale, high-quality residential properties targeted at the middle and upper-middle class in 21 cities and regions in China, said it will use the proceeds to finance existing and new property projects.