Investors reach out to Evergrande for new $1b note

China Evergrande returned to international bond markets on Friday, paying a staggeringly high interest rate for a $1 billion seven-year note, having already sold Asia's largest high-yield bond issue of the year just a week earlier.

China's biggest property developer sold the bonds at a yield of 9.5%, mopping up some of the excess demand after a dual-tranche offering on March 17 raised $1.5 billion but garnered more than $9.1 billion of orders.

One Singapore-based investor told FinanceAsia that he suspected “a club deal” instead of a public offering because of how quickly the deal was sealed. “The last message we got from the syndicate banks was that the order book was closed at $1 billion by 11:30am in the morning... I think the deal was sold mostly to friends and family of the company,” the fund manager said, suggesting there was an element of issuer discretion on pricing.

A funding official at Evergrande, however, declined to comment, citing the blackout period ahead of the release of its 2016 annual results.

People familiar with the company said the deal was driven by reverse inquiries after investors didn’t get enough allocations from the previous deal, meaning brokers approached Evergrande on behalf of investors to see if they were interested in selling a particular type of structure or maturity.

Evergrande, rated B2/B-B+ by Moody’s/S&P/Fitch, raised $500 million from a three-year bond and $1 billion from a five-year note on March 17. The two tranches together were more than six times oversubscribed, underlining the current frenzied demand for riskier bonds paying a higher coupon.

“A lot of investors did not get allocations on the three-year and five-year bonds, so they approached Evergrande for a new deal,” a syndicate banker running the deal said. “The seven-year bond offering was launched on the back of reverse enquiries.”

The person added that the deal secured enough anchor orders before launch, enabling Evergrande to close the close the deal early.

In secondary market trading on Monday, the new March 2024 bonds were well above water and yielding 8.826/8.474%, according to market data.

The bonds are redeemable at a cash price of 104.75% on March 29, 2021. They are callable at 102.375% in 2022 and at par in 2023 and thereafter.

Heavily indebted Evergrande plans to use the new proceeds to refinance some of its outstanding debt. Deal statistics for the bond sale were not available at the time of writing.

China Citic Bank International, China Merchants Securities Hong Kong and Haitong International were joint bookrunners of the deal.