HKR International brought a five-year zero coupon convertible deal to market late Tuesday, raising HK$1.41 billion ($180 million) via JPMorgan.
The deal is the latest CB to come to market from Hong Kong property developers this quarter, after similar transactions from Chinese Estates and Kerry Properties in March.
The deal has a five-year maturity with a put at year three. It has a put price of 116.479%, a conversion price of 128.948% and a conversion premium of 29.28%. Issued at par, with a zero coupon, the bonds have a yield to maturity or put of 5.15%, paid semi annually.
In this it has a slightly better premium than Chinese Estates, which had just 15%, but less than Kerry Properties which had 35%. There is no reset with the HKR deal, as with Kerry, although Chinese Estates did have a reset.
The leads used a credit spread of 220bps, despite the company not being rated. This gave a bond floor of 96.2% with implied volatility of 28.5% to 29%, slightly below the historic volatility of 30%. However, the deal required no stock borrow and so volatility figures are slightly irrelevant. The deal instead used a 5% borrow cost.
Other features include a 2% cap on dividend payments, above which HKR will need to make adjustments to the bondholders. Other than that, the deal is said to be fairly plain vanilla. The deal was sold under reg S restrictions and fees were 1.95%.
The deal met with a good reception from investors. Originally only sized at HK$1.1 billion, the HK$310 million greenshoe was fully exercised. Despite representing more than 24% of the company&'s HK$5.5 billion market cap, the deal has had little effect on the company&'s share price. This share price had held up well in the days prior to the deal, despite the weakness of the overall Hong Kong market. This resilience encouraged the company to launch the deal at this time. Since the deal launched, the bonds have traded slightly up at 100.25%-100.5%.
In terms of allocation, 80% went to Europe and 20% to Asia. Less than 50 accounts are said to have taken part. The company will use the proceeds to develop new property projects in China, as well as taking advantage of opportunities arising out of the new Disneyland Hong Kong theme park being built next to its flagship Discovery Bay development.
