Property developer Yanlord increases follow-on offer

The combined sale of shares and convertibles allows the company to boost its freefloat and broaden its shareholder base seven months after the IPO.
China-based property developer Yanlord Land Group was able to increase the size of its combined follow-on sale of shares and convertible bonds to raise a total of S$725.5 million ($473 million). The takings will increase further to $513 million if the greenshoe on the CB portion is exercised, but even if it isnÆt, the deal still marks the largest follow-on by a Chinese property company, exceeding Agile Property HoldingsÆ $408 million transaction in November last year.

The sale, which was well above the S$655 million initially targeted and more than double the S$283.6 million it raised in its Singapore initial public offering in June, allowed the company to significantly broaden its shareholder base and increase its freefloat. Only about 17% of the company was held by the public after the IPO had to be trimmed to only 53% of the planned size due to tough market conditions at the time.

Goldman Sachs acted as sole bookrunner for the transaction, which was completed early Friday (February 2) and came as the share price has more than doubled from the S$1.08 IPO price. The stock currently trades at a 15-20% discount to its net asset value, compared with 35% at the time of listing.

Investors were particularly keen on the CB, allowing it to be increased to S$415 million plus a 15% greenshoe, from S$300 million plus a 15% greenshoe. Even at this larger size, the CB was more than five times subscribed.

Meanwhile, the share portion attracted orders for about 2.5 times the S$310.5 million size, according to sources, who noted that the fact that the sale included a seven-day roadshow allowed investors to ask questions and ease some of their concerns over the recent news that the Beijing government will start to collect a land appreciation tax (LAT) from developers.

ôA lot of people still feel that ChinaÆs property sector has room to grow and if you believe in this growth story it is then about picking the right company,ö one source familiar with the transaction says. ôIt makes a big difference if you can meet with the management and hear its plans and strategies.ö

The money will be used primarily to expand YanlordÆs land bank for future developments. The company develops high-end residential properties in selected high-growth cities within the four major economic regions in China û the Yangtze River Delta (including Shanghai and Nanjing), the Pearl River Delta, Western China and the Bohai Rim. Over the past three years it has also started to develop high-grade commercial properties, such as office buildings, retail space and serviced apartments, both for sale and leasing.

As of September 30, Yanlord held properties with a gross floor area of 1.3 million square metres for future developments in addition to 1.47 million sqm GFA of properties under development and 1.7 million sqm GFA of completed properties.

Mainland property companies have been under pressure since the LAT announcement, but Yanlord outperformed its key competitors during the roadshow even though it fell 3.8% to ThursdayÆs closing price of S$2.25. Still the rest of the sector was down between 5% and 13% in the same period.

The 150 million new shares were sold at S$2.07 apiece. The price marked an 8% discount to the latest close, which observers said was reasonable given that the sale accounted for 54% of the freefloat - or an even steeper 112% if including the CB - and about 75 days worth of trading volume.

The share offer alone made up 8% of the existing share capital and the combined sale accounted for 20%, which is the maximum that can be sold in any given year, according to Singapore listing rules.

Sources say the equity offer was bought by 50-60 investors, both existing and new ones. About 45% of the demand came from Asia, 30% from the US and 25% from Europe, they say. High quality long-only and large hedge funds were both well represented.

The CB also attracted 50-60 investors. About two thirds of the demand came from Asian-based accounts, which nowadays tend to include a lot of off-shore US and global funds, 20% from Europe and the remaining 10% from the US. The fact that the CB was sold after a roadshow was said to have attracted long-only investors from places like Switzerland and Germany who arenÆt normally able to participate in Asian CBs as these are typically sold overnight and at short notice.

According to one source, several investors put in small orders initially, but chose to increase them as the book built and they had a chance to meet with the company.

The bonds have a five-year maturity with a put at the end of year three and a zero coupon. They also have an unconditional issuer call option after three years.

The yield and conversion premium were both fixed at the level most favourable to the company. This meant a 4% yield and a 33% conversion premium over the S$2.07 placement price. They were initially offered with a yield range of 4%-4.5% and a premium range of 28% to 33%.

The assumptions included a credit spread of 350 basis points, full dividend protection and a 5% borrowing cost. At the final price, this gave a bond floor of 92% and an implied volatility of 33%.

The share price performed well on Friday after the deal was priced, closing only S$0.02 lower at S$2.23. This represented a 7.7% premium to the placement price. And given that the conversion price on the bonds is fixed over that same placement price, the 33% premium effectively narrowed be a similar amount. Supported by that, the CB opened at 101.5-102.00% of face value and increased to 103% during the course of the trading day.
¬ Haymarket Media Limited. All rights reserved.
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