Chinese duo sail into G3 markets ahead of Fed/BoJ

Country Garden and Dongxing Securities take advantage of calm market conditions ahead of potential rate induced volatility.
Calm before the storm?
Calm before the storm?

Two Chinese companies from different ends of the credit spectrum jumped into benign primary markets on Tuesday to complete dollar-denominated offerings ahead of key policy meetings by the US Federal Reserve and Bank of Japan on what’s being dubbed Super Wednesday.

From the high yield sector, Country Garden Holdings, China's third-largest homebuilder by revenue, achieved its lowest ever headline cost of funding with $650 million seven-year non-call four bond.

Meanwhile, Shanghai-listed Dongxing Securities issued a debut dollar bond using a guarantee structure that enabled it to achieve an investment grade rating.

Syndicate bankers said regional investors remain constructive towards new supply since they expect the Fed to leave its benchmark interest rate unchanged.

One banker commented, "An upward move in interest rates is still on the cards this year, so some issuers are opting to get into the market and complete their fundraising exercises while overall borrowing costs remain at rock-bottom levels.”

Both of the new bonds came at the tight end of price guidance after attracting reasonable order books. Country Garden garnered around $2.5 billion in peak demand according to one banker, while Dongxing Securities attracted $2.3 billion.

However, in both cases this was less than recent deals.

Country Garden was not quite able to match the same level of investor enthusiasm as it did February 2015 when it captured $4.8 billion of demand for a $900 million seven-year non-call four sale.

Likewise, Dongxing’s controlling shareholder, Orient Asset Management, was in the market almost exactly a month ago with a deal that built a peak order book of $6.5 billion.

Credit analysts and sales desks suggested Country Garden had adopted an aggressive pricing strategy, which saw the new deal come through pre-deal estimated fair value levels around the 5.125% mark according to one non-syndicate bank’s estimates.

The Ba1/BB/BB+ rated developer initially pitched its new issue around the 5.375% level before tightening the range to between 5% and 5.125%.

Final pricing of the Reg S deal was fixed at 98.539% on a coupon of 4.75% to yield 5%, according to a term sheet seen by FinanceAsia. The first call option falls in 2020 at 102.375%, then at 101.188% in 2021 and par thereafter.

Distribution stats show that the final order book dropped off to $1.75 billion with 108 accounts of which 80% came from Asia and 20% from EMEA. By invsestor type, fund managers took 27%, ultra high net worth 37%, private banks 25%, banks 9% and insurers/sovereign wealth funds and corporates 2%. 

On their sales updates, the syndicate pitched two comparables from the company's outstanding curve: a $750 million 7.5% January 2023 issue and $900 million 7.5% March 2020 issue.

At Asia’s open on Tuesday, these two bonds were respectively trading on yield-to-calls of 4.798% and 4.728%. The former is callable in January 2018 and the latter is callable in March 2018.

By the end of the day, however, the whole curve had been pulled a quarter to half a point tighter as investors focused on goods news relating to the company’s higher property sales prices and use of proceeds to re-finance debt.

At the end of Tuesday, the two outstanding deals were trading on mid-yields of 4.42% and 4.39%.

This, therefore, suggests fair value closer to the 4.875% level and a more generous new issue premium of 10bp to 12bp.

Joint bookrunners for the transaction were Goldman SachsJP MorganBNP ParibasBOC International and HSBC.

Dongxing Securities

The Shanghai-listed brokerage firm, controlled by China Orient Asset Management, executed a debut capped $300 million three-year Reg S deal on Tuesday.

The A1/BBB+ rated offering was initially marketed at 170bp over three-year Treasuries, before the indicative price was reduced to 145bp over.

Final pricing of a September 2019 note was fixed at 99.646% on a coupon of 2.25% to yield 2.373%, or 145bp over Treasuries, according to a term sheet seen by FinanceAsia. 

Distribution stats show that the final order book stood at $2.1 billion with 81 accounts of which 92% were from Asia and 8% from EMEA. By investor type, 44% went to banks, 39% to asset manager, 9% to securities companies, 4% to sovereign wealth funds/insurers and 3% to corporates and others. 

The lead managers benchmarked the new issue against two outstanding bonds by controlling shareholder, bad debt manager China Orient, which owns 58% of the company. It guaranteed the deal issued in the name of Dongxing Voyage Ltd.

China Orient's existing 3.75% September 2019 note and 2.375% August 2021 note were trading on G-spreads of 135bp and 139bp respectively. They both have guarantee structures.

The parent’s most recent $650 million 2.375% August 2021 deal has not traded well since launch and is currently quoted on a mid-price about a quarter of a point below its issue price of 99.248%.

As a result, Dongxing appears to have taken a more emollient view towards pricing, offering investors a 7bp to 8bp new issue premium according to syndicate bankers.  

Joint global coordinators were Dongxing Securities Hong Kong, BOC International and Standard Chartered, while ABC International, Bank of China, CEB International, China CITIC Bank International, ‎China Minsheng Banking Hong Kong branch, Guotai Junan International, Shanghai Pudong Development Bank Hong Kong branch‎, Shenwan Hongyuan Securities Hong Kong.

This story has been updated since first publication with final distribution statistics.

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