With central banks worldwide seemingly committed to sustained easing, abundant funding opportunities are the new normal for Asian borrowers. Fantasia Holdings, a Shenzhen-based property developer, took advantage of the conditions yesterday to raise $250 million from the sale of a five-year bond.
Fantasia first tapped the dollar bond market in May 2010 with a $120 million deal, but those bonds are illiquid and, as a result, many investors were looking at the company for the first time when it started a non-deal roadshow in Hong Kong and Singapore on Monday and Tuesday.
It launched the deal the next day, attracting $1.5 billion of orders from 118 accounts after going out with price guidance in the low-to-mid 14% area. That was revised down towards 14% and the bonds eventually priced to offer a yield of 13.9%.
High-yield borrowers in China’s property industry have been quiet so far this year, but the injection of central bank liquidity that started at the European Central Bank two weeks ago has made it easier for some of those names to come to market.
China’s spate of corporate accounting scandals has also helped, according to one source. “Fantasia is a small company but it’s prudent and well-run, with a clean record. Investors are attracted to that,” he said.
The company also has a high-quality and low-cost land bank, particularly in Chengdu, but with a growing presence in Beijing and Suzhou, and an established foothold in Shenzhen and the Pearl River delta.
Kaisa Group, another Chinese high-yield property name, attracted $3.9 billion worth of orders for a similar $250 million bond two weeks ago. Those bonds were trading at a shade under 13% yesterday, roughly in line with Fantasia’s existing 2015 bonds.
The bonds are rated one notch lower than the company rating — B2 by Moody’s and B+ by Standard & Poor’s — and will be used to fund new and existing projects, refinancing and for general corporate purposes. According to its most recent financial report, the company had short-term debt of Rmb1.8 billion and a cash balance of Rmb1.4 billion.
S&P said the one-notch divergence from the corporate ratings was driven by its opinion that “offshore noteholders would be materially disadvantaged, compared with onshore creditors, in the event of default. In our view, the company's ratio of priority borrowings to total assets will remain above our notching threshold of 15% for speculative-grade debt”.
The rating agency also noted Fantasia’s aggressive debt-funded expansion into high-end residential developments — a sector in which it has limited experience.
However, both rating agencies noted the quality of the firm’s financial management. "While more debt will be added, Fantasia's debt leverage — measured by debt/total capitalisation of around 55% — will remain appropriate for its B1 rating," said Jiming Zou, Moody’s lead analyst for Fantasia.
Fantasia was founded by Zeng Jie, the niece of former Chinese vice-president Zeng Qinghong. She owns 61% of the company.
The deal was sold 91% to Asia, with the remaining 5% to Europe and 4% to offshore US investors. Fund managers took 40%, commercial banks 26%, private banks 20% and others 14%.
Bank of America Merrill Lynch was global coordinator and joint bookrunner alongside UBS and ICBC International.
