Busy Friday: Franshion, Megaworld, Posco all price bonds

Franshion Properties and Megaworld raise a combined $700 million, while Posco prices its $700 million bond.
Franshion's Shanghai Jin Mao Tower
Franshion's Shanghai Jin Mao Tower

Franshion Properties, Sinochem Group’s flagship real estate developer, closed a $500 million 10-year bond late Friday night. The senior unsecured notes priced at a yield of 6.75% or a spread of 316.1bp over US Treasuries. Deutsche Bank, HSBC, Nomura and Royal Bank of Scotland were joint bookrunners.

The deal gathered an order book of $2.9 billion from more than 200 accounts. Investors in Asia bought 47%, Europe 39% and the US 14%. The notes were priced at par.

Hong Kong-listed Franshion is a 62.87%-owned subsidiary of Sinochem Hong Kong, which is 98%-owned by Sinochem Group, one of China’s key state-owned enterprises.

Thanks to its parentage, Franshion is treated as a quasi-sovereign borrower — backed up by a letter of support from Sinochem Corporation and a change-of-control put at 101%.

A default on debt issued by any of Sinochem Hong Kong’s major subsidiaries will trigger a cross default on Sinochem Hong Kong’s debt. The term “major subsidiary” is defined by ownership levels as well as other factors, including contribution to revenue.

Franshion is considered a major subsidiary of Sinochem Hong Kong and, although it is possible this could change, the letter of support and change-of-control put suggest that it will remain so.

While Franshion’s bonds benefit from strong parental support, the deal was competing with others in the market. “Franshion is pricing 150bp back of the parent and the leads are saying it should only price 50bp back of the parent,” said one investor. “But Franshion’s issue is sub-investment grade, whereas Citic Pacific’s senior bond is investment grade and they are offering roughly similar yields.” (Citic Pacific closed a heavily subscribed $1.25 billion bond on Friday night. See separate story on this website.)

Franshion’s issue is rated sub-investment grade by Moody’s and S&P at Ba1 and BB+, respectively, and investment grade by Fitch at BBB-. Investors compared the deal to bonds issued by China Overseas Land (a subsidiary of China State Construction Engineering) and PRC real estate developers such as Agile Property and Yanlord Land.

Elsewhere, Philippine property developer Megaworld also priced its $200 million seven-year bond on Friday evening. The deal was about 1.5 times subscribed.

The bonds priced at a yield of 6.875% and were reoffered at 99.315. The coupon was fixed at 6.75%. UBS was the sole bookrunner. The deal offered a customary covenant package, including a debt incurrence test. There is also a change-of-control put at 101% — Megaworld is the property development arm of Philippine tycoon Andrew Tan’s Alliance Global. The bonds mature on April 15, 2018.

Early Friday morning, Korean steel company Posco priced its $700 million 10-year bond inside its secondary curve. The bonds priced at Treasuries plus 175bp, at the tight end of the Treasuries plus 175bp to 180bp final guidance and 10bp inside the Treasuries plus 185bp initial guidance.

Barclays Capital, BNP Paribas, Deutsche Bank and Goldman Sachs were joint bookrunners.

The notes initially tightened to Treasuries plus 174bp/172bp before widening to Treasuries plus 176bp/174bp on Friday afternoon.

Posco bonds due October 2020 were trading at around mid-swaps plus 165bp and the new bonds priced at the same level on a mid-swap spread basis. However, there was a tenor extension of six months on the new issue — it matures on April 2021, which meant that it priced inside Posco’s secondary curve.

The deal gathered a total order book of $4.5 billion from 260 accounts. By geography, investors in the US bought 51%, Asia 38% and Europe 11%. By investor type, funds bought 62%, banks 12%, insurance 17% and private banks/others 9%.

The week ahead also looks busy, with more deals hitting the market. CNPC (Hong Kong) Overseas Capital has mandated Citi, Standard Chartered and ICBC as joint global co-ordinators and bookrunners for its triple-tranche dollar bond. Bank of America Merrill Lynch, BOC International, Deutsche Bank and HSBC are also joint bookrunners.

The company plans to issue a benchmark five-year, 10-year and 30-year dollar bond. The deal is expected to launch after a roadshow that starts today and covers Asia, Europe and the US.

Elsewhere, Korea’s Hyundai Steel has mandated Bank of America Merrill Lynch, Citi, Credit Suisse, HSBC and J.P. Morgan as joint bookrunners for its dollar bond. An investor roadshow is expected to start today in Hong Kong, move to Singapore and Boston on Tuesday, and London and New York on Wednesday.

¬ Haymarket Media Limited. All rights reserved.

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