China Properties Group, a private real estate developer, on Tuesday raised a $150 million five-year note, with a callable option in the third year, in the face of weaker Asian markets as sentiment continued to be hit by the US government shutdown dragging into its ninth day.
The company is the first Chinese developer to hit international bond markets after a week-long national break – also known as the ‘Golden week’ – which ended on October 7.
China Properties’ deal priced at 13.5%, which is slightly tighter than the initial price guidance around the high-13% area, according to a term sheet. It also received an order book greater than $325 million from 55 accounts.
“I don’t think [this week] feels like the perfect week to announce a high-yield trade unless they had that level of confidence that they effectively had that trade covered prior to announcement,” said a syndicate banker from a rival institution to FinanceAsia before the deal was priced.
Asset managers and institutional investors subscribed to almost half of the deal, while 38% went to private banks, 6% to financial institutions and 7% to others. Asian investors took majority of the notes, accounting for 96%, while the rest went to European investors.
China Properties will be using the proceeds for refinancing, capital expenditure and general working capital purposes.
Meanwhile, Franshion Brilliant, subsidiary of developer Franshion Properties China, sold a $300 million five-year bond on Wednesday. The deal – which had an initial price guidance of 5.625% - was priced tighter at 5.375%, and was more than seven times oversubscribed from 180 over accounts, according to a source.
Its parent, Fashion Properties, is the guarantor for the BBB-/Ba1/BB rated notes while Sinochem Corporation provided a letter of support, offering investors a certain level of comfort.
Asset and fund managers subscribed to a bulk of the notes, accounting for 71%, followed by retail investors with 15%, banks 7% and others 7%. Asian investors took 77% while the remainder went to European investors.
The proceeds – just like China Properties’ – will be used for refinancing, working capital and general corporate purposes.
In addition, China Overseas Land & Investment has hired Bank of China International, BNP Paribas, Citi, CLSA, HSBC and JPMorgan to arrange a series of fixed-income investor meetings that began on Wednesday, according to a source close to the deal.
Chinese real estate developers are quickly making use of a window that is unexpected to last in the coming days as the US government’s October 17 deadline to raise the debt ceiling draws nearer.
President Barack Obama said he would be willing to negotiate only after Republicans agree to re-open the government and raise the debt limit with no conditions. Republican House Speaker John Boehner said he was disappointed by the president’s approach.
Nonetheless, buoyed by an improving Chinese property market, Mainland developers will continue to tap debt capital markets for cash.
For example, China’s property markets picked up over the week-long national holiday, with most first-tier cities seeing rises both in new home transaction volumes and home prices, according to a report in the Chinese Securities Journal on Tuesday.
From October 1-6, a total of 783 new home transactions were registered in Beijing, about double the same period last year, while second-hand home transactions declined, the report said, citing data from the Beijing municipal commission of housing and urban-rural development.
“In the cyclical aspect of the [Chinese] economy, growth has stabilised,” said Dong Tao, chief regional economist for non-Japan Asia at Credit Suisse at a press conference held in Hong Kong on October 3. “The housing sector is warming up with strong interest in home buying and land acquisition.”
In September alone, five Chinese property companies issued dollar bonds amounting to a total volume of $1.7 billion – a big increase from the previous two months which saw one deal each, according to Dealogic data.
Deutsche Bank, Goldman Sachs, HSBC, Royal Bank of Scotland (RBS) and Standard Chartered are sale managers of Franshion’s paper.
Bank of America Merrill Lynch is the sole bookrunner of China Properties’ bond.