China Overseas $1.5bn triple-tranche deal

The largest-listed mainland developer in Hong Kong wows with Asia’s first triple-tranche Reg S deal, targeting investors on the longer-end of the curve.
The need to build land banks increases amid a buoyant real estate market on the Mainland.
The need to build land banks increases amid a buoyant real estate market on the Mainland.

China Overseas Finance raised a mammoth $1.5 billion triple-tranche senior unsecured bond on Wednesday, extending down the credit curve into the 30-year space, as the need to build land banks increases amid a buoyant real estate market on the mainland.

Considered Asia’s first triple-tranche Reg S bond and the largest dollar-denominated China real estate bond on record, the transaction is split into equal volumes of $500 million in five-, 10- and 30-year tranches, according to a term sheet seen by FinanceAsia.

China Overseas’ existing 2017s, 2022s and 2042s were the closest comparables for the bonds and were trading at 142bp, 269bp and 238bp above Treasuries at the time of pricing with G-spreads of 200bp, 285bp and 245bp respectively.

Pricings came in much tighter than expected, with a large percentage of asset and fund managers subscribing to notes in the longer-duration buckets, according to syndicate bankers. For example, a whopping 64% and 69% of asset and fund managers ploughed their cash into the 10- and 30-year tranches, which were also oversubscribed by more than 11 times and eight times respectively.

As a result, both the 10- and 30-year tranches tightened by 30bp from an initial price guidance of 295bp and 280bp respectively above Treasuries, while the five-year tranche tightened by 20bp from a guidance of Treasuries plus 240bp.

“It’s a good opportunity to be able to access 30-year paper in Reg S only,” said a source close to the deal. “Usually you need some sort of US bid to help that tenor along but we are able to get it all done in Asia and Europe.”

Good secondary market performance is a true testament of investor appetite for notes at the longer-end of the curve, notes the source. The 10- and 30-year paper tightened to 280bp and 273bp above Treasuries while the five-year notes were trading at par.

However, not all issuers will be interested in tapping the longer-end of the curve.

“The 10- and 30-year are the most expensive tenors,” said a source. “Not everyone is willing to pay for that unless they really need the financing.”

New home prices in September rose 20% in the southern business hubs of Shenzhen and Guangzhou, 17% in Shanghai and 16% in Beijing from a year earlier, according to the National Bureau of Statistics on Tuesday. Prices climbed in 69 of the 70 cities the government tracks.

Property transactions rose 21.5% in September, a big jump compared to 9.5% in August, adds the organisation.

“The housing market performance has been much stronger than the market had expected at the beginning of the year,” wrote Haibin Zhu, chief China economist at JPMorgan, in a report on Tuesday. “It has been an important driver for economic growth.”

Additionally, the country’s third-largest Hong Kong-listed developer Evergrande Real Estate Group sold $1 billion worth of five-year senior unsecured notes today – the company’s first dollar bonds in more than three years. The 144A/Reg S five-year notes have a final price guidance of 8.75% - a tightening of 25bp from an initial guidance of 9% on Wednesday.

However, the deal – which was initially supposed to price on Wednesday – priced a day later. Market participants were speculating that bookrunners were not confident in releasing the final price guidance based on the fact that they received a weak orderbook last night. 

“They only had a $2.1 billion book when they came to Asia in the morning which is relatively small especially in terms of the deal size which they were looking to do,” said a Hong Kong-based syndicate banker. “They probably didn’t have the confidence to go ahead with the final guidance without seeing what the US will do.”

Nonetheless by noon today, Evergrande was able to achieve its target size and tighten the pricing of its notes due to a change in orderbook dynamics.

China Merchant Securities, Deutsche Bank, Goldman Sachs and JPMorgan are sale managers for Evergrande’s transaction.

Bank of China International, BNP Paribas, Citi, CLSA, HSBC and JPMorgan are the joint-bookrunners of the China Overseas’ deal.


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