Hongkong Land priced Asia’s first 15-year security this year in the early hours of Thursday morning last week. The Hong Kong developer had being absent from the market since 2004, and with no other longer-dated paper this year, the bonds were very well received.
“By going to that maturity profile they were taking a bold and innovative step and we had high confidence that the market would be fine with a 15-year,” explained one source.
The $600 million Reg-S bonds pay a 4.5% semi-annual coupon and were reoffered at 98.765 to yield 4.615%, which is equivalent to 215bp over 10-year Treasuries.
As suggested by the fact that the spread was quoted against the 10-year Treasury, defining clear comparables for the notes, which mature on October 7, 2025, was not a straightforward process.
“We needed to work out what fair value for the 10-year, 20-year and 30-year would look like by using the existing curve, then extrapolate fair value from that,” one banker said.
Based on those calculations, the bookrunners were said to have settled on Treasuries plus 215bp as fair value. However, given the lack of supply in the market they decided to come out with a wider whisper at 237.5bp in order to gauge investor appetite for the credit.
When it was clear that there was going to be sufficient take-up of the bonds, the guidance was formally revised to 225bp. And just two hours later, at the end of the Hong Kong trading session on Wednesday, final yield guidance was released at Treasuries plus 215bp.
Demand was strong with $2.7 billion worth of orders from more than 180 accounts. Asia-based investors were the biggest buyers with 73%. Europe took 25% and offshore US accounts the remaining 2%.
The long-dated notes also saw a strong bid from ‘buy and hold’ accounts and, in the end, fund managers received 60% of the bonds.
“In a week or two you’re not going to want to go short of these bonds because it's not going to be possible to buy,” said an observer.
“Most of the bonds will find their way into the hands of long-term investors and most of the book already has,” noted another.
Other long-dated bonds in the market such as the Hutchison 2033, Petronas 2036 and Singtel 2031 are all fairly illiquid as they are held by accounts that are not looking to sell. So, many accounts viewed Hongkong Land’s 2025s as an opportunity to buy long-dated Asian credit amid an improving market backdrop.
Other strong bids were put in by private banks, which were allocated 18% of the notes. Commercial banks bought 11%, insurance companies 9% and other types of investors 2%.
When the bonds opened for trading in Hong Kong last Thursday, traders saw some profit-taking but, as the day rolled on, the bonds maintained a fairly stable performance around the re-offer price and they closed the Asian session at a spread of 216bp.
Hongkong Land was recently upgraded by Moody’s to A2. It is a well established name in Hong Kong and one of the oldest property developers in the territory, having been incorporated in 1889. It has a portfolio consisting of 12 grade-A office and retail buildings, primarily in central Hong Kong, with a combined value of $14 billion as of December 31, 2009.
However, given the issuer's long absence from the market, the deal was still preceded by a non-deal roadshow the week before launch.
Moody’s rated the notes in line with the new corporate rating, and Standard and Poor’s gave the notes an A-.
The deal was arranged by HSBC, Standard Chartered and UBS.