Chinese property developer Gemdale crossed the line last night with a $350 million high-yield bond, beating the looming pipeline of high-yield bonds. In contrast to Far East Consortium and China Aoyuan, which were both struggling to attract investor interest, Gemdale crossed the line with relative ease.
It was a public holiday in the US on Monday and in Singapore on Tuesday — and as a number of investors were away, it was an not obvious time to start marketing a deal. But Gemdale managed to price, getting ahead of competing supply that is expected later this week.
The $350 million five-year non-call-five was priced to yield 7.125%, at the tight end of the 7.125% to 7.25% final guidance. The initial whispers were 7.375% and the initial price guidance was 7.25%. The deal attracted a book in excess of $1.4 billion and, according to the source, it was allocated mostly to real money accounts without much inflated orders from private banks.
Gemdale Corp is an A-share listed residential property company incorporated in China. It issued the bonds through an offshore special purpose vehicle that is guaranteed by its offshore subsidiaries. Despite the structural subordination, there was some investor protection.
There is a keepwell agreement (or commitment to avoid the risk of insolvency) and a deed of equity interest purchase between the guarantor, Gemdale Corp, and the bond trustee. Under the deed, the onshore company will buy assets from the offshore holding company if it runs out of money to pay bondholders. There is also an interest reserve account for 12 months.
Gemdale is rated Ba1/BB+ but the bonds issued by the offshore SPV are rated two notches lower based on the linkage between the parent and the offshore subsidiary.
According to S&P, it views the guarantor, Famous, as a “highly strategic” subsidiary but not a “core subsidiary” of Gemdale. Famous also has a limited operating history, having been founded in 2005 . Its assets account for only 10% sof Gemdale’s total asets.
The rating agency also noted that the timeliness of financial support from Gemdale to Famous is “uncertain” due to China’s controls over foreign exchange and capital, and while the keepwell agreement and the deed of equity interest show support from the parent, it is not the same as a guarantee.
HSBC was sole global coordinator and bookrunner. J.P. Morgan was a bookrunner.