China Resources Land priced a $750 million five-year debut bond early Friday morning. The bonds priced at Treasuries plus 290bp, at the tight end of guidance, which was in the area of Treasuries plus 295bp, and 10bp inside the whisper of Treasuries plus 300bp.
There was some surprise that the company chose to go for a five-year tenor, rather than the expected 10-year. According to one person familiar with the deal, there was sufficient demand to support the longer tenor, but the company was focused on printing a five-year deal.
Equities closed lower on Thursday, reflecting the difficult market conditions. Five-year US Treasury yields stood at 1.94% as the deal was being marketed, but had fallen to 1.86% by the time it priced. Against this volatile backdrop, borrowers such as LDK Solar and China Qinfa held off pricing dollar bonds that had been expected to launch last week.
“Credit spreads were widening, but yields were going down, so for investors looking at the absolute yield the return was declining,” said one person familiar with the deal. The coupon was fixed at 4.625% and the notes reoffered at 99.353 to yield 4.772%. The bonds mature on May 19, 2016.
HSBC was the sole global co-ordinator and bookrunner. BOC International and DBS were joint bookrunners.
The bonds were trading slightly tighter at Treasuries plus 289bp/288bp on Friday morning. China Resource Power gathered an order book in excess of $3 billion from 200 investors. Asian investors bought 68% of the deal, European investors 24% and US 8%. By investor type, fund managers bought 46%, banks 26%, private banks 15%, insurers 11% and corporates/others 2%.
The closest comparable was China Resources Power (CRP), which has bonds that mature on August 2015. Taking into account the yield curve between the four- and five-year US Treasuries, this put a CRP deal of a similar maturity at around Treasuries plus 278bp, which meant that China Resources Land paid a new issue premium of about 10bp.
China Resources Land’s bond is rated Baa2 by Moody’s and BBB by Standard & Poor’s — one notch higher than CRP’s bond, though both issuers are similarly rated.
Based on the price guidance of Treasuries plus 295bp, Nomura analyst Jacob Samuel said that the bonds offered good value to investors, thanks to the relative scarcity of short-dated liquid investment-grade paper.
“Most of the recent Chinese state-owned enterprise backed credits like CNOOC, CNPC and Beijing Enterprises have priced long-dated 10-year and 30-year bonds and we believe that this shorter dated Baa2/BBB credit will draw good interest from investors at the indicated pricing guidance,” said Samuel in his note.
China Resources Holdings, a state-owned enterprise that owns 65.37% of China Resources Land, incubates property projects on its balance sheet before injecting them into its subsidiary. Given this strong parental support, China Resources Land is considered to be one of the strongest blue-chip names in the Chinese property industry.
Elsewhere, GCL-Poly Energy, China’s biggest producer of solar polysilicon, has mandated BOC International, BNP Paribas, Royal Bank of Scotland and Standard Chartered for a dollar benchmark. Roadshows start on May 18 in Singapore, continue in Hong Kong on May 19, May 20 in London, May 23 in New York and May 24 in Boston. The proposed issue is rated BB by S&P.
China-based Lonking Holdings, which makes wheel loaders for the construction industry, has mandated Credit Suisse as sole global coordinator and bookrunner on its proposed five-year non-call-three senior note. Standard Chartered is also a joint bookrunner. The company plans to start investor presentations in Asia, Europe and the US on May 18.
Bharti Airtel is expected to come to market soon with a dollar bond, featuring Barclays Capital, Deutsche Bank, HSBC, Standard Chartered Bank and UBS as bookrunners. BNP Paribas and Credit Agricole are joint leads.