Investors pile into Lifestyle’s $150 million tap

Hong Kong retailer Lifestyle International strikes with its tap ahead of a crucial Greek debt swap deadline and succeeds in re-pricing its secondary bonds.
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Lifestyle International owns two Sogo stores in Hong Kong
<div style="text-align: left;"> Lifestyle International owns two Sogo stores in Hong Kong </div>

Hong Kong-based retail store operator Lifestyle International on Thursday priced a $150 million tap of its outstanding January 26, 2017 bonds, printing a deal ahead of a crucial Greek debt swap deadline last night, with little competing supply in the Asian dollar bond market.

The tap brought the total issue size up to $500 million and succeeded in re-pricing its secondary bonds. The leads — Bank of America Merrill Lynch and J.P. Morgan — announced the tap around 10.30am, Hong Kong time, with an initial guidance at the area of Treasuries plus 385bp. At that time, the outstanding Lifestyle January 2017s were bid at Treasuries plus 370bp and the tap offered a pickup of about 15bp.

At noon, final guidance was released at Treasuries plus 370bp and the bonds priced at Treasuries plus 370bp around 4pm Thursday. Lifestyle’s bonds went on to trade 10bp tighter in the secondary at Treasuries plus 360bp on Thursday evening.

The deal attracted an order book of $1.2 billion from 69 accounts, which meant it was nearly 10 times covered. Demand was driven by Asian investors, which were allocated 92%. The rest went to Europe. Banks took 50%, funds 41%, insurers 5% and private banks 4%.

The company had initially issued a $350 million debut five-year bond in January this year at Treasuries plus 460bp, so its latest tap came 90bp inside of that on a spread over Treasuries basis. The tap was reoffered at 102.978 to yield 4.559%.

Lifestyle, which listed on the Hong Kong stock exchange in 2004, focuses on mid- to upper-end department stores. It owns two Sogo stores in Hong Kong and three Jiuguang stores in China. It is the latest issuer to join what has been a phenomenal bond rush seen this year. According to Dealogic data, year-to-date, US dollar bond issuance for Asia excluding Japan has chalked up to $30.3 billion, nearly 40% of last year’s total volume of $77.5 billion. It is nearly double the $16.1 billion issued during the same period last year.

But market participants are not convinced that the volumes are sustainable. “We have seen about 40% of last year’s volumes issued in the first quarter of this year. But I would not extrapolate this strong performance for the next few quarters,” said Owen Gallimore, head of credit strategy, Asia at ANZ.

“There are a number of macro factors that could close the primary markets off from time to time. We’ve seen economic data from China coming off and a potential Greek debt default. Also, the US has outperformed but we don’t know how long that will last. But I think we should be on track to match last year’s issuance,” he added on Thursday afternoon.

A number of issuers are eyeing the dollar market. Korea National Oil Corp has mandated Barclays Capital, Bank of America Merrill Lynch, BNP Paribas, Deutsche Bank, HSBC and Korea Development Bank to arrange fixed income investor meetings starting on March 12. The company may issue a dollar bond subject to market conditions.

The Development Bank of Mongolia meets investors in Singapore today and London on Tuesday and could issue a dollar bond. Deutsche Bank, ING and HSBC are arrangers for those meetings.

¬ Haymarket Media Limited. All rights reserved.
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