New World scores with tight bond return

The Hong Kong-listed property developer raised $600 million from a deal that appeared to price well inside fair value.

New World Development, controlled by local billionaire Henry Cheng Kar-shun, returned to the international bond markets this week, selling a $600 million unrated 10-year bond that got big demand from yield-hungry investors.

The Reg-S sale, issued under the name of New World China Land, came a week after China Aoyuan, a B2/B/BB- rated developer, drew an impressive order book of $2.5 billion for its $250 million three-year bond, as fixed-income investors seemingly shrugged off the potential for a correction in Hong Kong and China's red-hot residential property sector.

"The need to chase yield remains intact, especialy as the supply of both high-grade and high-yield has fallen short of our expectations," a Singapore-based investor told FinanceAsia. "We are looking for opportunities to put cash to work.

After a slow start to the year in Asia's dollar bond market, New World Development seized its chance to capture that pent-up demand and priced the deal inside its theoretical curve, according to bankers.

The group went out with initial price guidance of "the 5.25% area", before narrowing that to 12.5bp each side of 4.875%. Final pricing of the January 2027 deal was fixed at par to yield 4.75%, or 237.2bp over the 10-year US Treasuries, according to a term sheet seen by FinanceAsia.

According to a research note from a non-syndicate bank, fair value for the January 2027 bond should be at 5.1%, based on 1.15bp for each extra month of maturity from its outstanding 2022 bond. But despite that ostensibly tight pricing, the bond held up in the secondary market. It was quoted at around 100.21 in mid-morning trading, implying a yield of 4.72%.

The final order book reached $2.75 billion from 215 accounts. Asian investors took 93%, with the remainder being shared between accounts in Europe. the Middle East and Africa. By investor type, fund managers and asset managers took 46%, private banks 29%, banks 21% and others 4%.
The deal will be guaranteed by New World Development, which has a business ranging from ports and infrastructure to department stores in China. The Cheng family also controls Hong Kong-listed Chow Tai Fook, the world’s biggest jewellery group by market capitalisation.

The proceeds of the bond will be used to refinance New World's outstanding 5.375% November 2019 $900 million bond.

HSBC and JP Morgan were the bookrunners.

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