China’s CAR jump starts dollar bond roadshow

The Chinese car rental company is the first Asian borrower to announce a global roadshow for a maiden dollar-denominated bond issuance in 2015.

CAR, the Chinese car rental company, is the first Asian issuer to embark on a global roadshow for a debut dollar bond this year, a contrast from previous years when mainland developers were the first to do so.

The Beijing-based issuer has appointed Credit Suisse and Standard Chartered as global coordinators and bookrunners of the potential issuance, according to a statement to the Hong Kong Stock Exchange on Monday. The other bookrunner is Deutsche Bank.

Terms of the proposed notes — including principal amount and interest rate — will be determined through a bookbuilding exercise, CAR added in the statement.

In previous years, Chinese real estate companies were the first borrowers to reopen Asia’s debt capital markets post-New Year festivities but this has changed, at least for now until sentiment improves, DCM bankers said.

For example, on January 6, 2014, R&F Properties was the first Mainland developer to market a five-year dollar bond while Kaisa Group announced a tap issue of its existing 2018 notes.

“The bid for China high-yield property remains a little bit guarded compared to previous years when January is perceived to be a great month and huge demand applies for all issuance,” said a Hong Kong-based debt syndicate banker. “That said, the bid is still strong for other Chinese names outside the real estate space.”

In the latest slew of negative headlines that have tainted China's real estate industry, Chinese developer Kaisa Group was unable to repay a HK$400 million ($51.6 million) loan from HSBC on December 31.

The deadline was triggered by the resignation of the Shenzhen-based company’s chairman Kwok Ying Shing, the developer said in a HKEX filing on January 1.

Investor meetings will begin for CAR in Hong Kong on January 5 and 6, followed by Singapore on January 7 and 8, according to a source familiar with the matter. The company will also visit London, New York, Boston and Los Angeles after the Lion City.

Proceeds of the proposed dollar bond will be used for capital expenditure and refinancing purposes, as well as to enhance its current capital structure, added the source.

Moody's expects the proposed bond issuance to reduce the company's secured and subsidiary debt to total assets ratio to below 15% over the next 12 months. The ratio was around 61% at end-Jun 2014.

On the top

CAR is the top car rental company in China with 31% share of the short-term self-drive market as at end-2013.

Consulting company Roland Berger expects the Chinese car rental industry to grow at more than 20% a year into 2018, with existing players having the advantage of high entry barriers due to the capital intensity nature of the industry and restrictions on vehicle license plates by the Chinese government.

CAR has significant first-mover advantage over its peers — a large fleet size that is four times that of the second-largest player, more than 100 vehicle models to meet different rental needs, a wide geographic spread covering 70 major cities, a lower cost structure than its competitors, a dynamic pricing system and a strong distribution channel to dispose of its used cars, said Fitch in a report on Monday.

“CAR's ratings are supported by its dominant market share in the car rental market in China, significant flexibility to scale down [capital expenditure] during downturns and strong financial profile with low net leverage,” said Fitch, which has rated the issuer BB+. “The ratings are constrained by its short track record in used car sales and regulatory uncertainty in the car rental industry in China, which is in its early stages of development.”

Meanwhile, Moody’s rated the borrower Ba1 while Standard & Poor’s BB+, citing the company's leadership in the growing car rental market in China, strong shareholder support and sound financial metrics.

CAR's key shareholders include state-owned investment holding company Legend Holdings, private equity firm Warburg Pincus, the world's second-largest car rental company Hertz Corporation and its chairman, founder and CEO Charles Lu. These parties have stakes of 29.2%, 18.3%, 16.2% and 14.8% respectively.

The company has sizable cash holdings, which amounted to Rmb4.1 billion ($660 million) at September 30 and were greater than its total reported debt of Rmb4.0 billion, according to its financial statements.

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