Parkson bond closes 13 times oversubscribed

Despite high levels of demand, the issue from the Chinese retailer prices at favourable levels for investors.
Parkson, one of the largest foreign-owned retailers in China, raised $125 million last night via a Reg-S, five-year senior note with final books closing 13 times oversubscribed at $1.65 billion. As a result, the deal priced within just 36 hours of announcement.

The BB/Ba1 offering closed with a coupon of 7.125%, pricing at revised guidance, from an earlier indicated range of 7.125% to 7.25%, via sole bookrunner JPMorgan. The bond broke syndicate last night, trading up over 101.00% in the secondary market.

A total of 74 accounts participated in the transaction, with 74% of the bonds selling to Asia, 23% to Europe and 3% to US offshore. 40% of the bonds were allocated to funds, 35% to banks, 15% to asset managers, 9% to insurance and pension funds, and 1% to retail and private banking.

Sources on the buy-side say they were extremely pleased with the outcome of this transaction. ôParkson has shown that it is a highly reliable issuer, who should have no trouble at all tapping the bond market in the future. Both the issue size and the price were favourable to investors, despite the massive levels of demand.ö

The issue is callable after three years at 103.5625%, and at 101.7813% after May 30, 2011. The transaction also included a clawback up to 35% at 107.125%.

Bankers were not available to give information on relevant comparables.

Parkson will use $50 million of the proceeds to refinance a bridge loan from JPMorgan Chase Bank, while another $50 million will help fund the acquisition of the remaining 49% of Anshan Parkson, and the property on which it is located. Anshan Parkson is a subsidiary of the company which operates the Parkson department store of Anshan.

The rest of the proceeds will go towards general corporate and working capital purposes.

ParksonÆs debut on the international market began in November 2006, when it launched a five-year Reg-S bullet transaction, raising $200 million and attracting a $1.45 billion order book. ParksonÆs 2011s were yesterday trading at 104.5%-105% bid/offer.

The company, which is the PRC retailing arm of the Lion Group, a Malaysian-based conglomerate, aims to become one of the largest department store chains in terms of number of stores and network coverage in the PRC, capitalising on the continued growth of the domestic retail industry, and enhancing further the economies of scale of its existing retail platform.

Parkson manages approximately 886,000 square meters of retail space across 39 stores in 26 major cities. The company is substantially indebted, with a ratio of debt-to-Ebitda of 3.3 times, and an Ebitda coverage ratio of six times. Further, its debt coverage ratios are likely to weaken in the next two to three years due to its partially debt-funded expansions, according to MoodyÆs.

However, Parkson generated Rmb1,027 million from concessionaires in the year to December 31, 2006, and for the first quarter of 2007 this number was Rmb368.7 million. Further, direct sales totalled Rmb758 million in 2006 and Rmb279.3 million for the first quarter of this year.
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