In one of the first non-property Chinese high-yield names to come from China since the lockdown, Fosun International last week printed $600 million debt inside its own curve to refinance debt.
The Hong Kong-listed conglomerate, whose business is split into leisure tourism, insurance and banking, and healthcare, sold the upsized four-year non-call three paper at 6.85% as books swelled to more than $2 billion.
Timing for the deal couldn’t have been better. As one banker on the deal who spoke to FinanceAsia on condition of anonymity said: “It was probably one of the best days of the year so far – you'd be hard-pressed to finding a more suitable window”.
What was originally a $400 million Reg S deal went out with initial guidance of 7.35% area.
As has become the norm, there wasn’t a roadshow but there were Asia group calls and one-on-one calls with European investors.
Books swelled and the leads were able to tighten pricing by 50 basis points before the bond finally went out at 6.85%.
“You have much larger moves [in pricing] post-Covid than pre-Covid because we start the trades a bit wider. But also because investors have quite a bit of liquidity and generally they accept moves which they probably would have not accepted before,” said the banker.
It was also at final price guidance that the bond was upsized.
Comps on the deal are fairly straightforward. Fosun has visited the G3 markets twice in the past 12 months.
At the end of June last year it sold a $700 million US dollar bond with the same 4NC3 structure. That deal also saw significant demand and printed at 6.75%.
And in November last year, it sold a €400 million ($449.2 million) 3.5-year Reg S bond – the first Chinese high-yield name to tap the Euro market – at a very punchy 4.35%.
This year’s deal managed to print inside the implied dollar curve.
Fosun’s 2023s were trading at around 6.8% when the new deal came to market.
“There are three years left on that bond and we needed one more year of extension. For a new issue that is generally around 30bp. We are seeing fair value at around 7.10%,” said a banker who added that he reckons that the new issue printed around 25bp inside the curve.
The new 2024s have performed well, trading up in the secondary market and were last seen at 101.4625 on the offer side.
Proceeds will be used primarily to fund a concurrent tender offer for Fosun's outstanding senior bonds: its 5.375% December 2020s, 6.875% January 2021s, 5.25% March 2022s, and 5.5% August 2023s.
“The tender is still open,” a banker close to the tender told FinanceAsia. “It is being carried out across all sets of bonds and if the tender doesn’t actually match up to the bond size, then we have other offshore debt that we can use for refinancing.”
The deadline for the offer is 2 July.
The reason for carrying out the tender now is, what the banker called “opportunistic”. There is, he said, “a clearly defined waterfall in the tender offer” and that the company's priority is the 2020s and 2021s to “reduce some of the negative carry on these bonds”.
The move got the nod from analysts. “The development is slightly credit positive, in our view, as we expect: leverage to remain almost neutral with the proceeds mostly go towards refinancing; and debt maturity profile to improve and lengthen,” said Charles Macgregor, head of Asia at Lucror Analytics, who publishes on SmartKarma.
Fosun itself is rated Ba2/BB (Moody’s/S&P) – though the Moody’s rating was put on review for downgrade in late April. The bonds have an expected rating of BB from S&P.
Credit Suisse, Deutsche Bank, Commerzbank, Fosun Hani, HSBC, Natixis and Standard Chartered were joint global coordinators, bookrunners and lead managers on the deal. Credit Suisse and Deutsche Bank are managing the tender offer.
The bond was in the market at the same time that Reuters broke the news that Fosun is looking to sell its 6.7% stake in Alibaba’s smart logistics venture Cainiao Smart Logistics Network back to Alibaba for an estimated $1.3 billion.
Aside from the 18.5 times return on its $70 million investment in 2013, it is a good move for the company right now with much of Fosun’s leisure tourism arm (among its assets are France’s ClubMed and the UK’s Thomas Cook) struggling.
When the company reported full-year results at the end of March, the figures were good. Profits were up 10.4% to Rmb14.8 billion ($2.1 billion) on revenues that had risen 31% to Rmb143 billion.
"Over the past decade, Fosun carried out a number of expansions and explorations in different regions, investment areas and industries,” said chairman Guo Guangchang.
“Now, we will enter into a new phase of development, which is the optimisation of our asset allocation and focusing on core industries, in order to establish Fosun as the top-notch enterprise that achieves industry-leading positions in all of our core businesses."
But the Covid-19 pandemic has thrown a spanner in the works.
To give just the most recent example, on Monday, 29 June, Canadian entertainment group Cirque du Soleil Entertainment, in which Fosun holds a 25% stake, filed for bankruptcy protection.
It is in this light of this financial pressure that the Cainiao sale has been seen by analysts. “Cainiao is a non-core asset and the sale will shore up Fosun’s liquidity position,” said Trung Nguyen, senior credit analyst at Lucror Analytics.
To no surprise, questions on the investor calls focused on the company’s tourism arm. “There were questions about how the pandemic has affected the outlook for different parts of [the travel and tourism] business. But Fosun always has a huge pipeline of investments, so other questions were on equity investments that might go to IPO and queries of that nature,” said a banker.
With debt raised and a divestment on the cards, Fosun can not only support its existing companies until lockdown ends, but plans for future investment don't look to be in doubt either.