HSBC looking for success with Victory

Small scale deal offers Hong Kong bankers the chance to move down the credit curve.

Since the financial crisis in 1997 the Hong Kong dollar borrowing market has been dominated by large property plays which have tapped the market for long term bumper deals at wafer thin pricing. Many banks have complained that they have no choice but join these transactions as they have nowhere else to park their funds.

Despite the continuing effects of the Sars virus in Hong Kong HSBC is looking to provide investors with an alternative outlet for their excess liquidity by launching a HK$200m ($25.7 million) three-and-a-half year credit for Victory City Holdings.

Invitations have been sent to banks which will earn a margin of 70bp over Hibor and a top tier management fee of 89bp as arrangers for contributions of HK$30m or more, 84bp as lead managers absorbing HK$20m to HK$29m, 70bp as senior managers taking HK$10m to HK$19m and 76.5bp for managers lending HK$5m to HK$9m. Bankers have commented that the size of the deal is insignificant and were surprised that HSBC did not complete the loan as a bilateral as banks may not be willing to commit to such a small facility. One syndicator close to the deal suggested that the transaction would generate interest amongst bankers in Hong Kong as it is considered to be a good quality medium sized credit.

The borrower reported an increase in first half profits of 175%, with a large portion attributable to its core business - the provision of fabric, knitting, dyeing and finishing services. In addition it is looking to expand production lines into the more profitable yarn dyeing business, a move which analysts say can only improve its future prospects.

Other second tier corporates have managed to raise funds in the loan market proving that the appetite for these credits exists. The most recent example is Kingboard Chemical Holdings, which secured a HK$850m ($109.25 million) loan earlier this year through arrangers Citigroup, Rabobank and Standard Chartered. The response to this deal was overwhelming as investors flocked to the fatter margins available on what has become a well known credit in the Hong Kong market following three forays in the last four years.

Victory City's deal is offering an all-in of 106bp for an average life of just under two years for arrangers - substantially more lucrative than the 47bp paid for seven year money from the current HK$7bn fundraising for Sun Hung Kai and also far outside the proposed 10bp to 50bp range Hang Lung Properties has been recently sounding banks at for five and seven years.

Market sources say this deal offers what investors have been craving, a chance to book assets at a significant yield pick up to the longer term property deals by moving down the credit curve. Some of the bankers looking at the facility say that there have been few borrowers of similar credit quality in this sector tapping the market recently meaning there are few comparable deals.

Although this is the case investors are likely to be comfortable with the borrower's core business as its direct competitors, the much larger Texwinca Holdings and Fountain Set (Holdings), have both successfully raised funds in the past, though not since 2000 when the latter secured a HK$330m loan through arranger BA Asia.

No target has been set for the number of banks joining the deal and all of the responding institutions will be able book a portion of the deal. The arranger is confident that the response will be good as bankers will take this opportunity to diversify their portfolios. Responses are due in the next three to four weeks.

Share our publication on social media
Share our publication on social media