Road King Infrastructure, a Chinese property developer, priced a $300 million perpetual bond Monday night, drawing a whopping order book from yield-hungry investors.
The Hong Kong-listed company, rated B1/BB- by Moody's/S&P, launched the Reg S deal ahead of a two-day policy meeting of the US Federal Reserve. But according to Fed fund futures tracked by the CME, a rate hike is not expected until June.
"The lack of supply in the high-yield market and US President Donald Trump's promise to change business taxes helped spur a resumption of risk sentiment in Asia," said a syndicate banker on the deal.
The demand from investors hit as much as $6.2 billion at its peak, although by the time final guidance had been released and the order book closed, that fell to around $5.5 billion.
Bankers working on the deal hoped the issuer could raise $500 million, double what Road King originally planned. But such a large increase would have required board approval so, in the end, the issuer settled for an extra $50 million.
The leads — DBS, JP Morgan and HSBC — went out with initial price guidance of the 8.625% area before tightening the deal to 12.5 bp each side of 8.125%. Final pricing of the perpetual non-call five year bond was fixed at par to yield at 7.95%, the tight-end of the marketing range, according to a term sheet seen by FinanceAsia.
"The company's ability to narrow the price range was a testament to strong interest in the credit and the overall liquidity in the market," another banker commented. "Slashing the initial price target by more than 67bp was quiet an achievement."
The closest comparables were New World Development's $1.2 billion 5.75% fixed-for-life perpetual bond and Li & Fung's $650 million 5.25% perpetual bond, bankers said. The former was trading on a cash price of 98.6 to yield 5.84%, while the latter was trading on 89% to yield 6%.
Unlike most perpetual bonds which feature a call option, Road King did not impose a step-up mechanism. But the distribution rate will increase by 3% in the event of a covenant breach, according to the term sheet.
In a February 13 research note, S&P said Road King's perpetual bonds had minimal equity content because the bonds carry a senior unsecured obligation. "We would treat 100% of the principal as debt and 100% of the distribution as interest expenses in our ratio calculations," analysts at S&P wrote in the note.
The new deal, under the name RKP Overseas Finance 2016 (A) Ltd, performed well in the secondary market on Tuesday. It was quoted on a cash price of 102.50 to yield 7.34%, according to market data.
Fund managers took 64% of the deal, private banks 27%, insurers 4%, banks 3% and others 2%. Asian accounts were allocated 93%, with the rest being sold to investors in Europe.
