Agile Property sells $500 million CB

The Chinese developer achieves the highest conversion premium for an Asian CB in more than three years, and still manages to upsize the deal by 25%.
Chinese workers at yet another property projct.
Chinese workers at yet another property projct.

Agile Property Holdings last night raised $500 million from an upsized convertible bond that met with enthusiasm from investors, despite aggressive-looking terms.

While the Chinese property developers have been repeatedly tapping the high-yield dollar market since early last year, there hasn’t been much CB issuance from the sector. And observers said investors had been waiting for a deal from Hong Kong-listed Agile, which is one of the strongest and best understood credits in the sector.

The deal came on the back of a 35.4% gain in Agile’s share price from its 2011 low on March 11, including a 13% rally during the past five days. It is now trading close to the peaks of around HK$13.25 to HK$13.30 that it has reached a couple of times in the past two years. Even so, the company managed to secure a 40% conversion premium — the highest for an Asian CB since January 2008 when CapitaLand brought a 15-year deal with a 10-year put and a record 72% premium.

Aside from the scarcity value, investor interest would also have been boosted by the fact that there is stock borrow available in the name and even some credit default swaps, albeit in small quantities. However, even without the CDS, Agile’s two outstanding high-yield bonds, which mature in 2016 and 2017, provided a good price reference that made people comfortable with the credit.

The deal has a five-year maturity, but can be put back to the issuer after three years. It was marketed at a size of $400 million, with a $100 million upsize option that was exercised in connection with the pricing. The coupon (and yield) was fixed at 4% at launch, which, according to a banker, marks the lowest coupon for a Chinese real estate company in the past 12 months.

The conversion premium was offered in a range between 35% and 45% over yesterday’s closing price of HK$13.04, and, as noted, was fixed at 40% for a conversion price of HK$18.256. This is slightly below Agile’s all-time high of HK$18.94, which it reached in October 2007.

The deal also looked pricey on a relative value basis, with an implied volatility of 30% to 32.5%. This is based on a credit spread of 550bp to 600bp, a stock borrow cost of 2% to 3% (the bulk of the borrowing after the launch of the CB was done at 3%), and a full dividend pass-though. The bond floor ended up just below 92%.

However, investors were seemingly not dejected and the base deal was fully covered in just 15 minutes, even though it wasn’t launched until 8pm Hong Kong time. When the bookbuilding closed after a couple of hours, the coverage ratio had increased multiple times and there were more than 170 orders in the book. The demand was heavily slanted towards hedge-funds, which is no big surprise in light of the high premium, but the deal did attract outright investors too. More than half of the demand came from Asia, with the rest generated out of Europe – the deal wasn’t open to onshore US investors.

The bonds also found support in the aftermarket, and early in the Hong Kong morning the CBs were trading at 100.5 to 101.

At $500 million this is the second largest CB by an Asian company this year after London-listed Essar Energy, which raised $550 million in January. It is also the only deal greater than $200 million since issuance started to pick up again in March, and the strong demand bodes well for the growing pipeline.

Agile said it will use the proceeds to replenish its landbank and for other general corporate purposes.

The CB was arranged by Standard Chartered, Morgan Stanley, HSBC, Barclays Capital and Royal Bank of Scotland.

Photo provided by AFP.

¬ Haymarket Media Limited. All rights reserved.

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