The difficulties faced by Far East Consortium and China Aoyuan suggest that investors are clearly still selective on high-yield and unrated credits.
Far East, an unrated property developer, had gone out with guidance for its five-year dollar bond at 5.5% and, according to sources, was expected to price on Friday evening.
That did not happen, however, and it appeared as though the deal was still struggling on Monday. The leads either could not be reached or would not comment on the deal, but feedback from investors suggested that they were not very keen.
“The book is said to be covered for a deal size of $200 million... but I heard that many investors are lukewarm,” said one investor. “I think people prefer Regal Hotel [also unrated] over Far East due to the credit and structure,” he added.
Early this morning, in a filing to the Hong Kong stock exchange, Far East Consortium said that it is not in its interests to proceed with the proposed issue under current market conditions. "However, the company will continue to monitor market conditions and may reconsider a bond issue if market conditions become favourable," it added.
The company is listed in Hong Kong and develops properties and runs hotels and car parks. Its residential properties are in China, Hong Kong and Australia. Barclays and Deutsche Bank were joint bookrunners.
Meanwhile, property developer China Aoyuan had gone out with price whispers in the mid- to high-14% area for its five-year non-call-three on Thursday last week. However, it still had not priced the deal by Monday though was said to have attracted $200 million of orders for a targeted $200 million deal size. According to a source, the company is organising additional site visits to its properties in China on Monday and Tuesday.
This is a somewhat unconventional approach — given that initial price talk was already out last week. Deals are typically done within a day, but a source defended the approach: “It’s a debut issuer and investors need a bit more time to do credit work. Investors have asked to see the properties and the company is accommodating those requests.”