Hopson moves Asia debt down the credit curve

Hopson Development receives $6 billion worth of orders for its junk bonds.

Asia’s bond market continued to churn out deals last night with usual visitors such as Philippine port operator ICTSI and Hysan Development tapping the market. However, it also took a turn down the credit curve with a Chinese developer pricing the first triple C-rated dollar bond out of Asia in a long while.

Hopson Development’s bond was rated Caa1 by Moody’s and CCC+ by Standard & Poor’s, but its junk status did little to deter investors that piled into the $300 million five-year bond, putting in a massive $6 billion of orders.

The bonds, which are callable after three years, priced at 9.875%, at the tight end of the 10.125% to 9.875% final guidance and well inside the 10.5% initial guidance. Hopson has issued bonds in the past — it has outstanding bonds maturing in 2016. According to a source, Hopson redeemed some bonds in November last year, which gave investors comfort.

However, Hopson’s outstanding paper, along with many other high-yield bonds, is highly illiquid and, as a result, any investor that wants a decent exposure would have to buy those bonds in the primary market. “Investors cannot get a meaningful allotment in the secondary market and, therefore, are willing to pay for liquidity,” said one banker.

Hopson’s outstanding 2016s were trading about 9.2% to 9.15%, which translates to 75bp for a two-year extension. On a curve-adjusted basis, the bonds were said to have priced inside their secondary bonds. The deal was largely taken up by institutional investors and private banks were allocated roughly 25% of the bonds. ICBC Asia and UBS were joint bookrunners.

The bid for bonds has been surprisingly strong this year — irrationally so, some might say. And recent issues have been performing so far.

“We have been impressed by how strong the bid for Asian bonds is despite concerns over supply,” said Lian Chia Liang, head of Asian investment at Western Asset Management. “At least seven deals have come through so far this year, and the majority of these have outperformed. Among the Chinese property names, Country Garden and Kaisa are both trading above the par issue price, while Shimao is wrapped around par.”

“Admittedly, there are pockets that are lagging,” Lian added. “But from our perspective, we think this is a healthy outcome, in the sense that there is credit differentiation as well as valuation discipline. What we don’t want to see is a market with unbridled enthusiasm, one which has a tendency to create market froth.”

CSI Properties
In contrast to Hopson, it was a less easy ride for debut property developer CSI Properties, which closed its $150 million five-year bond on Wednesday evening. The Hong Kong and Shanghai property developer started marketing its unrated dollar bond on Tuesday with a guidance of 6.5% and priced its deal at 6.5% on Wednesday.

The fact that guidance barely budged and the company kept books open for two days suggests that investors weren’t rushing to buy. However, a source said that the deal was “this week’s business” and given that it was a debut name, it was going to take more time. The last update investors were given was that the book was comfortably covered for a $150 million deal and no distribution statistics were released.

Bank of America Merrill Lynch and J.P. Morgan were joint bookrunners.

Agile and a bit more...
In the high-yield space, Chinese developer Agile Property is also rumoured to be looking to tap the bond market. The company has been making headlines of late, particularly since its chairman, Chen Zhuo Lin, was formally charged by Hong Kong police with two counts of indecent assault earlier this week.

Since reports of the assault first broke in August, the company has taken steps, however. In November last year, it amended the terms of its loan covenant, which had previously stated that there would be an event of default if Chen ceased to be the chairman.

“The news of the assault first emerged in August and, since then, the company has taken proactive steps to ensure that the company’s day-to-day running won’t be affected,” said one investor.

Elsewhere, Indika Energy is meeting investors for a potential bond, to be arranged by Citi, Standard Chartered and UBS. Thai Oil has also mandated Barclays, HSBC and Standard Chartered for its deal.

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