China Overseas Grand Oceans’ debut dollar bond met with some resistance from investors when it tried to tap the market on Tuesday, forcing the Hong Kong-listed property developer to revise its offering documents.
The main grouse for investors was the conspicuous lack of a change-of-control clause to protect them if China Overseas Grand Oceans' biggest shareholder, state-owned China Overseas Land Investment (COLI), ever tried to slash its stake in the company. The omission was all the more conspicuous given its inclusion in some of the firm's other outstanding securities.
The five-year dollar benchmark bond was initially marketed to investors on Tuesday morning at US Treasuries plus 350bp, with pricing expected as early as later that day.
One Singapore-based investor said the original offering circular included a change-of-control put option that would allow investors to redeem their bonds if any shareholder besides COLI accumulated more than 50% of the shares in China Overseas Grand Oceans. However, the clause did not protect investors if COLI significantly reduced its stake.
"You could have COLI, which is the linchpin to this credit, selling its stake down, which would be a credit negative event and not trigger a change of control event," he said.
COLI currently owns 37.9% of China Overseas Grand Oceans, with the rest held by the public and other shareholders.
China Overseas Grand Oceans's outstanding convertible bonds, which are denominated in Hong Kong dollars, do have a change-of-control put option if COLI’s stake in China Overseas Grand Oceans falls below 30%. However, this clause was omitted from the original dollar bond offering circular sent to investors.
"I find it strange that they would go out with terms that are different from their convertible bond," said the investor.
Subsequently, the company made revisions to include a change-of-control put option if COLI’s stake fell below 30%, effectively harmonising it with the terms of the convertible bond.
According to one source familiar with the deal, the company is now allowing investors time to digest the change.
Bank of America Merrill Lynch, UBS, DBS, ICBC International and Macquarie are joint book runners on the deal.