Chinese property developers have hit the dollar bond market in a serious way this year — with no fewer than 17 developers raising $6.1 billion in January. But New World China Land late Wednesday night bucked the trend and turned to the dim sum market to close a Rmb3 billion ($482 million) bond.
New World China closed its deal at a time when investors in the US dollar space are weary of the glut of Chinese property deals and are showing signs of indigestion after recent bonds have traded underwater.
The company had first tapped the dim sum market with its debut Rmb2.8 billion three-year bond back in April 2012 at a yield of 8.5%. This time round, it raised Rmb3 billion through a five-year bond that priced to yield 5.5%. It issued a longer tenor at a lower coupon than its debut bond.
According to a source, the company was looking at the dim sum market all along, suggesting that it needs the renminbi and is either happy to keep it offshore or has found a way to remit the funds.
New World China Land is the mainland property flagship of New World Development, a major Hong Kong property developer whose chairman is Cheng Yu Tung.
The deal was unrated. Despite this, investors put in Rmb9.6 billion ($1.5 billion) worth of orders. A total of 111 accounts participated. The bonds traded up in secondary markets at 100.20/100.50.
The covenants were similar to the old bonds — though there is a change-of-control put at 101 if New World Development holds less than 55% of New World China Land. This is slightly lower than the 60% threshold in the old bonds. When New World Development issued its bond last year, its stake in the company stood at about 70% and the fact that the change-of-control threshold is now lower suggests that the company’s stake in New World China Land could fall over time.
The bond benefited from a letter of support from parent company New World Development. However, this letter is not a guarantee and there is no legal recourse to New World Development should New World China default on the bonds.
Hong Kong and China investors were allocated 82%, Singapore investors 15% and other investors 3%. By investor type, fund managers were allocated 41%, private banks 49%, banks 8% and corporate and others 2%. BOC International and HSBC were joint bookrunners.
The dim sum market has had a quieter start than the US dollar market as the latter has captured most of the attention of borrowers. According to Dealogic, a total of $1 billion has been raised in the dim sum market this month (as of January 28). This is a 20% rise from the same period last year. In contrast, $18.4 billion was raised in the US dollar market for the same period, a 38% rise from the same period a year ago.
“The dollar market has been grabbing most of the headlines and that has been driven by high-yield issuance from Chinese property companies,” said Benjamin Rudd, executive director, head of overseas investment at Ping An of China Asset Management. “In contrast, the dim sum market has been quieter, but that is partly a function of it being a higher-grade market.”
In addition, the basis swap moved against borrowers earlier this month. This affects funding costs for companies tapping the dim sum market to swap to US dollars. “We saw the swaps move about 30bp against issuers at one point,” said one banker. “It has come in but it is still not as favourable as it could be.”
Still, there have been bouts of activity. Chinese state-owned enterprise Huaneng Power International on Wednesday closed its Rmb1.5 billion ($240 million) debut bond. The three-year dim sum priced at a yield of 3.85%, at the tight end of the 3.85% to 4% final guidance and about 50bp inside of initial guidance at the area of 4.25%. CICC Hong Kong, ICBC International and Bank of America Merrill Lynch were joint bookrunners.
Russian Agricultural Bank last week offered investors the chance to diversify with its Rmb1 billion debut three-year dim sum bond that priced to yield 3.6%. That deal priced inside its peer, VTB, which tapped a 4.5% October 2015 dim sum bond for Rmb1 billion at 3.8%. J.P. Morgan and The Royal Bank of Scotland were joint bookrunners for Russian Agricultural Bank.