China Property prices largest Chinese high-yield bond this year

The real estate developer's debut bond prices at the tight end of final guidance.
On Friday, China Property priced its B+/B1 $300 million Reg-S/144a seven-year non-call-four deal at the tight end of final guidance (9.125%-9.24%, initially 9.25%-9.5%). The deal, which was managed by Merrill Lynch, marked the largest Chinese public high-yield bond this year.

The order book was 10 times oversubscribed, amounting to $3 billion in demand and comprising over 200 accounts. The number of investors that were actually allocated bonds was undisclosed. In terms of geography, 50% of the bonds were allocated to Asia, 30% to Europe, and 20% to the US. Investor type breakdown was as follows: 65% to funds and asset managers, 15% to banks, 7% to insurance companies, and 13% to private and other types of banks.

The proceeds will be used to fund the companyÆs existing flagship projects, Shanghai Concord City and Shanghai Cannes, as well as purchasing new land.

In terms of comparables, sources suggest that Lai FungÆs March 2017s (9.125%) are the most relevant. These are trading at 8.95% with no call feature. As a rule of thumb, some bankers claim, a call feature represents 25bp, implying that the transaction priced through Lai FungÆs curve. However, it can be said that the deal priced with the same coupon as Lai Fung, despite its call feature, intimating that investors viewed this credit somewhat more favourably.

The covenant package was thought to be a little more investor-friendly than Lai FungÆs. The latterÆs Ebitda-to-interest coverage ratio (up to 2010) is two times (3.25 thereafter). China PropertyÆs is 3.25 times, while most other Chinese real-estate companies have an Ebitda-to-interest ratio of three times. However, it should be said that investors appreciated Lai FungÆs diversified asset portfolio, with seven to eight projects in progress, in contrast to China PropertyÆs two flagship projects. China PropertyÆs gross net-to-Ebitda ratio was 2.1 times before this deal.

The bond traded up by one point on the secondary market.

China Property is a property development company focused on Shanghai and Beijing, and is involved primarily with large-scale residential and commercial projects. Its 2006 revenues stood at HK$903 million, with an Ebitda of HK$378 million. In February, Merrill Lynch led a HK$1.62 billion ($207 million) IPO for the company, floating 25% of its shares on the Hong Kong stock exchange.
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