HNA-backed Grand China Air sells unrated bond

Strong demand for the unrated bond prompted the issuer to increase the size of the deal by 50% to $450 million.

Grand China Air, controlled by China's acquisitive HNA Group, returned to international bond markets on Tuesday, raising a bigger-than-initially-targeted $450 million by selling two-year notes.

The Reg S deal follows a flurry of activity by Chinese issuers over the past week as borrowers take advantage of constructive market conditions before investors turn their attention back to the possibility of a US interest rate hike in mid-March.

Headquartered in Beijing, Grand China Air was founded in 2007 and is set to merge its operations with HNA’s four smaller airlines, including Shanxi Airlines and Chang An Airlines. In a marketing document, Grand China Air said it operated 14 domestic routes in six cities as of June 2016.

Orders for the debt offering peaked at more than $3 billion of orders, prompting the unrated group to lift the size of the deal to $450 million from original indications in the $300 million area. The final order book totalled $2.4 billion from 138 accounts, with more than 60% of the deal sold to fund managers, bankers running the deal said.

“The company benefits from the halo effect that comes from HNA Group and Hainan Airlines,” a Singapore-based fund manager told FinanceAsia. “With a short maturity, a 6% yield looks attractive to fund managers.”

Founded by aviation tycoon Chen Feng, HNA Group and its subsidiaries spent more than $27 billion on acquisitions in 2016, Dealogic data shows, underscoring the company's deal-making strengths but also raising some debt concerns. HNA controls China's fourth-largest airline, Hainan Airlines.

Initial guidance was set around the 7% area in early Asian hours, before tightening to the 6.5% area. The final pricing of the March 2019 bond was fixed at 99.769% with a coupon of 6.375% to yield 6.5%, according to a term sheet seen by FinanceAsia.

Attractively priced

One of the closet comparables to the new issue was HNA Group’s $300 million 6% August 2019 note, which traded on a bid price of 101.15 to yield 5.492%. Another comparable was Hong Kong Airlines’ $550 million 6.9% January 2019 note, which traded on a bid price of 102.5 to yield 5.482%.

“The issuer paid a heavy new-issue premium to investors, leading to a robust order book,” a syndicate banker said. “The fair value of the bond should be at 6.25% level, so the final pricing is obviously more lucrative than that.”

The new bond, under the name Grand China Air Hong Kong Ltd., was quoted on a bid price of 100.25 to yield 6.24% on Wednesday, suggesting continued investor interest in secondary market trading.

The company plans to use the new proceeds from the debt sale to repay its $350 million 5.5% senior guaranteed notes and for other general corporate purposes.

Joint bookrunners for the new deal were Guotai Junan International, CCB International, CITIC CLSA Securities, DBS, Hong Kong International Securities, and Shanghai Pudong Development Bank Hong Kong branch.

¬ Haymarket Media Limited. All rights reserved.