Yue Xiu Enterprises, an investment arm of Guangzhou’s municipal government, raised $200 million on Monday from the sale of an exchangeable bond into Hong Kong-listed subsidiary Yuexiu Transport Infrastructure.
The deal, which benefited from a guarantee by the parent, monetises a 20% appreciation in the infrastructure company’s share price during the past month and was priced at the investor-friendly end of the range with a 1.5% coupon and 10% conversion premium.
Yue Xiu wanted to achieve a certain pricing target, according to a banking source, which led to a slightly unusual structure: a five-year maturity and a two-and-a-half-year put (six months less than is standard for Asia deals).
Even so, 50 accounts placed orders and demand was sufficient to upsize the initial $150 million deal by $50 million.
Most of the interest came from outright investors as the stock is illiquid and has a relatively low historical volatility of 20%, meaning that even hedge funds were looking at the deal as a long-only play.
The deal was marketed with a credit spread of 250bp — a level that was achievable thanks to the implied support of the local government. The bonds will be adjusted for dividends of more than HK$0.13 a share in any fiscal year.
Based on the final terms and a historic volatility of 20%, this resulted in a bond floor of 95.5% and an implied volatility of 18%.
The conversion price is equivalent to HK$5.63, based on the HK$5.12 closing price on Monday. Although a 10% premium is small for an Asian equity-linked deal, the strike price is almost 40% higher than the stock’s recent low in March.
The deal was issued through Asia View, a special purpose vehicle.
Yuexiu Transport Infrastructure owns, operates and manages 300 kilometres of toll roads and bridges in Guangdong province, as well as in other high-growth areas in China. It is also an investor in Yuexin Chishui Port in Wuzhou.
Yue Xiu Enterprises is wholly owned by Guangzhou Yue Xiu, a holding company of the Guangzhou municipal government.
The joint bookrunners were HSBC, JP Morgan and Nomura.
