Joint leads HSBC and JPMorgan priced an upsized $500 million issue for Hongkong Land yesterday (Wednesday). The 10-year deal came at the tight end of revised guidance despite having to battle against the prevailing negative winds of Alan Greenspan's latest remarks concerning interest rates.
The market's interpretation that US rates will rise sooner rather than later pushed Asian spreads wider, with high grade credits closing the day 3bp to 5bp wider. The two leads, therefore, decided to shut the book a day early in case further damage is inflicted today.
After two days of roadshows in Hong Kong and Singapore, the A2/BBB+ rated credit had built a $2 billion order book at the tight end of revised guidance between 115bp and 117bp over Treasuries.
The deal was upsized from $300 million to $500 million and final pricing came in at 99.114% on a coupon of 5.5% to yield 5.617%. This equates to 115bp over Treasuries or 67bp over Libor. Fees total 30bp.
About 150 accounts were allocated, with a geographical split of 43% Europe, 22% Singapore, 17% Hong Kong, 11% rest of Asia and 7% offshore US. By investor type, funds took 44%, banks 40%, retail 8% and insurance companies 8%.
At the time of pricing, the group's 7% May 2011 international debut was bid at about 64bp over Libor. When the $600 million deal was originally completed in 2001 it came 4bp through Hutchison Whampoa, Hong Kong's de facto benchmark corporate borrower. Today that differential is more like 53bp in Hongkong Land's favour.
Since then, Hongkong Land has been upgraded by Moody's in line with the Hong Kong sovereign (A3 to A2), but downgraded by Standard & Poor's (A- to BBB+). It is currently on stable outlook with the former and negative outlook with the latter.
In a recent research report, UBS commented that, "Our views of Hongkong Land's credit ratings fall closer to S&P's than Moody's. With significant capex over the medium term and an aggressive dividend policy, we expect debt to remain at elevated levels."
But it went on to add, "We see little scope for fundamental catalysts to support further spread performance. However, we acknowledge that near term technicals for Hong Kong corporate assets should remain strong."
Between the end of 2000 and 2003, Hongkong Land has seen debt grow from $1.241 billion to $2.167 billion. At the same time gross debt to EBITDA has jumped from 5.4 times to 8.5 times.
Company supporters have often argued that the group should be regarded more as a property investor than a developer and as such can withstand higher debt ratios because it is more of a utility style credit. The group has also worked hard to reduce secured debt, which amounted to almost one third of the total at the end of 2000. Today the figure is virtually zero.
Hongkong Land is the biggest landlord in the Central district of Hong Kong and is currently spending $210 million on the renovation of its prime Landmark complex.