CapitaLand sells convertibles with record 10-year maturity

The company's solid growth outlook and past share price performance instill confidence in investors and allow for a high premium.
SingaporeÆs largest property developer CapitaLand has raised S$350 million ($221 million) from the sale of convertible bonds with the longest maturity ever seen in Asia.

The bonds, which mature in 10 years but can be put back to the issuer at par after seven, also carry a high conversion premium of 42.8% which is partly a function of the long duration but also a testament to the bluechip quality and popularity of the issuer.

CapitaLand's stock has risen 60% in the past 12 months to ThursdayÆs record close of S$5.25 on the back of a strong earnings performance and its ongoing expansion into growth markets like India and Russia.

To sell convertibles with a premium above 40% on the back of a record price and that big a share price gain is obviously an achievement, but the companyÆs consistently strong share price performance since it listed in 2000 did instill some confidence, observers say. The developer issued a convertible bond back in 2002, which has been converted into equity in its entirety.

The bonds, which were brought to market by JPMorgan, will pay a 2.1% coupon. It was fixed at the top end of an indicated range that started at 1.60% and since the bonds are both issued and redeemed at par this will also equal the annual yield.

The conversion premium, which is the highest ever for an Asian real estate company, was fixed over ThursdayÆs volume-weighted average price of S$5.2147 for a conversion price of S$7.3136. It had initially been offered at between 40% and 45%.

There is an issuer call after five years subject to a 125% hurdle.

There is an option to increase the size of the offering by S$150 million to S$500 million, which wasnÆt exercised as of last night. According to a source familiar with the offering, the companyÆs target had been to raise $220 million, which suggested that perhaps it would stick to that to ensure it was absorbed well in the market.

It was also unclear whether the excess demand would be sufficient to cover the upsize option. Approximately 40 accounts, mainly global CB investors, were said to have bought into the issue. About 70%-75% went to Asia-based funds, while the rest was taken up from Europe.

The pricing was based on a credit spread of 95bp over Sibor and a stock borrow cost of 0.5%. There is active lending in the stock which will enable the investor to hedge the equity option and consequently there was no asset swaps provided by the bookrunner.

CapitaLand will compensate bondholders for dividend payments above a gradually rising absolute level starting from S$0.069 this year, which works out to be a dividend yield of about 1.3%.

The deal has a bond floor of 86.3% and an implied volatility of 27%. The historic volatility is about 32%.

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