Greentown China completed an impressive turnaround on Monday, raising $400 million from the bond market just three years after breaching covenants on its last bond.
Since then, sales at the Chinese property developer have improved and, in June last year, Hong Kong’s Wharf Holdings invested $650 million to take its stake in Greentown to 24.6%, up from 2%.
That injection of capital, together with some asset sales, has helped Greentown deleverage its balance sheet and encouraged the rating agencies to consider an upgrade.
The $400 million Greentown raised on Monday will certainly help. Moody’s analyst Jiming Zou said last week, when the agency announced its rating review, that the new funds “will improve its liquidity profile and extend its debt maturity, which could eventually in turn lead to a more stable financial profile and could be positive for its ratings”.
All of this is clearly good news for Greentown’s credit story, but it entered the market at a difficult time. There has been a glut of high-yield Chinese property paper in the market so far this year and investors are starting to tire of the stuff.
“Investors are more careful now compared to earlier in the year,” said one banker. “They’re still cash rich, but you can't just throw a deal out there. Risk is on, but sensibly.”
Even so, Greentown was still able to raise five-year funds at 8.5%. The non-call-three bonds were initially marketed with a 9% coupon before tightening by 50bp.
One source close to the deal said that it was a difficult credit to price as Greentown does not have any existing liquid bonds. It is also rated lower than most of its rival developers — with a rating of B3 from Moody's and B+ from Standard & Poor’s, while the issue is rated one notch lower.
“Some people looked at the rating and thought the pricing could have been wider, but others looked at the Wharf ownership and gained a lot of confidence from that,” said the source.
Yanlord’s 2018 bonds were trading at a yield of 7.3% yesterday afternoon, according to one source, while Sunac’s 2017s were at 8.9%.
Deutsche Bank, BOC International, Goldman Sachs, HSBC, ICBC, Standard Chartered and UBS were joint bookrunners and managed to execute the deal in just 18 hours, despite Greentown’s absence from international bond markets since 2006.
The final order book totalled more than $2.8 billion from 153 investors, with 75% from Asia and the rest from Europe or offshore US accounts. By investor type, 38% went to funds and asset managers, 35% to private banks, 25% to corporates and 2% to banks.
However, close to half of the deal may have gone to private bank clients in reality, depending on how much of the “corporate” demand is actually tycoons and other rich individuals buying through corporate entities. This demand was likely a result of the strategic stake held by Wharf, which is a well-regarded name among such buyers.
In secondary trading, the bonds traded up yesterday to around 101.5 after pricing at par.
The deal marks quite a comeback after the company bought back its last bond in 2009 after breaching covenants on indebtedness. “Everyone has put the past behind them,” said one banker. “Most investors are very impressed.”
Greentown is the leading property developer in Zhejiang province and also has operations in and around Shanghai and Beijing, as well as other provincial cities such as Hefei in Anhui province, Zhengzhou in Henan province, Changsha in Hunan province and Urumqi in Xinjiang.