JPMorgan kicked off roadshows last Thursday in Singapore, before heading to Hong Kong on Friday and London on Monday. Price guidance was announced on Tuesday Asia time, and the deal was priced mid-morning in the UK to allow for London to review the book before pricing was finalised.
When guidance was released yesterday, the lead sought a price of around 8%. But due to the popularity of the transaction, JPMorgan was able to close the deal 12.5bp tighter. The final order book closed at $1.45 billion, 7.25 times over-subscribed.
The Ba1/BB rated deal priced at par yielding 7.875%, equivalent to a spread of 321bp over US Treasuries.
The deal couldnÆt have been timed better as investors have been baying for Asian non-investment credit in recent weeks after a month of overall apathy. Indeed, recent deals such as Pakistan Mobile (Mobilink) and Greentown have also had the benefit of huge demand from all quarters.
Last week, Mobilink closed a $250 million seven-year non-call four year deal with a total of $3.9 billion in orders; one of the largest order books on account thus far this year. While Greentown, another JPMorgan led deal with UBS, priced an upsized $400 million debut global bond on the back of $2.2 billion in orders from upwards of 200 accounts û an oversubscription ratio of five-and-a-half times.
Comparably, Chinese property developer Greentown China Holdings priced its bond offering at the tight end of guidance as well. Guidance had been initially announced in the 9.125% region, usually translating to a plus or minus of 0.125%. However, as the book built, guidance was further tightened to 9% to 9.125%, with a revised deal size of $375 million to $400 million on offer. Final pricing on the BB/Ba2 rated notes came at par with a 9% coupon.
Meanwhile B3/B rated Mobilink launched initial guidance at 8.75% to 9%, but saw pricing come in to 8.625% as it picked up momentum through a very controlled bookbuild. Final pricing came at par with a semi-annual coupon of 8.625%.
Parkson is an interesting credit for investors who may not be familiar with the company on a stand-alone basis but should be familiar with its parent Lion Diversified Holdings of Malaysia, who also owns Megasteel. Megasteel tried to bring a proposed $450 million deal to market a year ago, but failed to generate enough interest so the deal was pulled. However, to be fair, market conditions were far less favourable last November.
Despite its sister subsidiaryÆs own problems in the Asian debt markets, Parkson is backed by a very strong credit story.
It is a well recognised brand name as one of the largest retailers on the Mainland with national scale coverage and over 12-years of operational experience. It is also listed on the Hong Kong Stock exchange and has had a very strong track record so far this year, as Parkson's shares have more than doubled this year to HK$32.20, outstripping the 23% gains of the Hang Seng Index.
In its first ratingÆs report for Parkson, MoodyÆs notes that the company ôbenefits from strong working capital management practices, a reflection of the strengths of its concessionaire model and the sound bargaining power it enjoys over its suppliers. However, as the company already consistently generates positive free cash flow, its future credit profile will largely depend upon the success of its expansion plan - after the bond issuance - and management's discipline in pacing any inorganic growth. Currently, it expects to continue growing rapidly, and will open and acquire three to five stores each year as well as some of its managed outletsö.
The report goes on to say: ôIn terms of its financials, as of December 2005, adjusted Debt/Ebitda ratio was low at 1.3-times, but is expected to increase to around three-times in the next few years in view of its expansion plan. After the bond issuance, Parkson will also turn from net cash to report RCF/adj net debt of around 30%. But while such ratios are comparable to those of some investment-grade global retail peers, Moody's also notes that the history of Parkson's current structure is limited, given it was established after its listing and the completion of a corporate restructuring, both of which occurred in 2005.ö
Geographically, the deal was sold 80% into Asia and 20% into Europe.
Parkson will use the proceeds from the sale of the notes to finance further retail expansion throughout China. Parkson operates 23 self-owned stores and manages an additional 15 spread across 26 cities in China. As at the end of 2005, Parkson had a revenue of Rmb1.2 billion ($152 million) and a net income of Rmb248 million ($31.5 million).