Property Company Cofco Land raised a $800 million five-year bond on Monday night, achieving overwhelming demand from investors that were looking for good yield pickup in the investment-grade space.
The A- rated offering comes with a keepwell deed and equity interest purchase undertaking from its parent, Cofco Hong Kong. These forms of credit enhancement allowed the issuer to tighten the pricing of the bond by 22.5bp from an initial price guidance area of 237.5bp over Treasuries, according to a term sheet seen by FinanceAsia.
“Cofco Land had good support from the parent,” said the source close to the deal. “It priced through [some of] its comparables.”
The nearest comparables for Cofco Land’s credit included the likes of China Overseas Land and Investment and China Resources Land, both of which are highly rated Chinese property companies. Both these issuers had existing bonds maturing in 2019 that were trading at a G-spread of 219bp and 222bp respectively, added the source.
But investors were using other similar comparables like Cofco Land’s parents outstanding notes maturing in 2018 and 2023 that were trading at a G-spread of 127bp and 168bp respectively, according to a credit analyst.
“[This] looks cheap to us,” said the credit analyst. “Although this bond from Cofco Land should clearly trade wide of Cofco Hong Kong given the latter’s larger scale, superior diversity and 100% government ownership, we still consider a 100bp pick-up to be generous.”
In fact, Cofco Land continues to attract investors in secondary markets, resulting in the offering tightening by a further 7bp on Tuesday afternoon, according to Bloomberg data.
Giant order book
Cofco Land’s issuance received a total order book of $5.3 billion from over 260 of accounts, majority of which went to Asian investors. Fund managers subscribed to 58% of the notes, followed by banks 16%, private banks 15%, insurance 8% and others 3%.
The bond proceeds will be used to partially fund the company’s purchase of six mixed use property projects announced on September 2014, according to the prospectus. This will be an asset injection via its parent company and worth $12.5 billion.
Cofco Land focuses on the development of integrated urban projects and mixed use commercial complexes. The company also generates rental income (10% of revenue), property management fees (5%) and hotel earnings (21%), with these sources of recurring revenue set to grow to a sizeable 45% of the company’s revenue post the asset injection.
BOCI, DBS, Goldman Sachs and HSBC were the joint global coordinators and bookrunners of the transaction. Other bookrunners include ANZ, Bank of Communications, ICBC Asia, JP Morgan and Wing Lung Bank.