Record high-yield issuance continues with Winsway and SPG Land

Winsway and SPG Land raise a combined $700 million after a record first quarter for high-yield issues.
Demand for Winsway's coking coal is soaring in China
Demand for Winsway's coking coal is soaring in China

The first-quarter surge in high-yield issuance continued into this month on Friday when China’s Winsway Coking Coal and Hong Kong developer SPG Land sold $700 million of new bonds.

According to Dealogic, high-yield US dollar bond issuance for Asia ex-Japan touched $8.8 billion during the first quarter of 2011, the highest level in any first quarter. It was more than four times the $2.1 billion raised during the same period in 2010. Global high-yield bond issuance also hit a record high of $117.8 billion during the first quarter this year.

The larger of Friday’s two issuers — coal logistics company Winsway Coking Coal — priced a $500 million five-year non-call-three late in the evening. The debut bond is a continuation of the theme of Chinese borrowers outside the real estate sector tapping the bond market. The move away from China property started earlier this year when names such as Texhong Textile came to market, offering investors the chance to diversify.

Another non-real estate firm, Fufeng, concluded roadshows yesterday and is expected to tap the market with a five-year non-call-three to raise up to $300 million as early as today. Fufeng makes monosodium glutamate, a food flavouring. Citi and Deutsche Bank are joint bookrunners for its debut bond.

Winsway hired Bank of America Merrill Lynch, Deutsche Bank, Goldman Sachs and ICBC as joint bookrunners for its bond. The three foreign banks were also bookrunners on the company’s IPO in October last year. Winsway is a supplier of imported coking coal and transports Mongolian coking coal into China.

“Investors want exposure to other parts of the Chinese economy and this was reflected in the book, which was over $2 billion in size,” said one person familiar with the deal. “The market for high-yield issuance has hit record levels in the first quarter. Assuming rates don’t rise, we think the market should stay robust in the third and fourth quarter,” he added.

The bond offered an 8.5% coupon, pricing at the tight end of the 8.5% to 8.75% initial guidance. They were trading above the par issue price at 100.9 in secondary trading on Monday afternoon. The deal gathered an order book of more than $2.2 billion from 165 investors.

Investors compared the deal to bonds issued by PRC coal miner Hidili, which are similarly rated BB- by S&P and B1 by Moody’s, as well as Indonesian peers such as Buma, but neither are exact comps as they are coal mine owners and operators, and more susceptible to fluctuations in coal prices.

In contrast, Winsway collects coal, refines it and delivers it, which led many US investors to look instead at US railroad companies as comps for the deal.

Winsway’s issue is rated B1/BB-/BB by Moody’s/S&P/Fitch.

The Hidili bonds due November 2015 were yielding 8.68% when the deal was launched, and when it became clear that there was keen interest in Winsway’s issue, Hidili’s bonds rallied to 8.5%, which is where the Winsway bonds priced. However, Winsway’s bonds mature on April 8, 2016 and the five-month extension over Hidlili’s bonds is worth about 15 basis points, so in effect Winsway priced inside Hidili.

Investors in the US bought 38%, Asia 42% and Europe, Middle East and Africa collectively bought 20%. Fund managers bought 56%, hedge funds 21%, banks 8%, retail 12%, insurance 1% and others 2%.

According to Standard & Poor’s analyst Joe Poon, Winsway’s BB- rating reflects its limited operating history, its short track record of consistent financial management and its aggressive growth appetite. “Other weaknesses include the company’s exposure to fluctuations in coal prices, material supply risks and transportation bottlenecks,” he said.

These weaknesses, he said, are balanced by the good growth potential for imported coking coal in China and the company’s competitive position due to its first-mover advantage. Winsway is 49.7% controlled by founder and CEO Wang Xingchun.

Hong Kong-listed property developer SPG Land also priced its $200 million five-year non-call three bonds on Friday evening. The company carried out a roadshow on March 8, but held off a launch until last Friday. Morgan Stanley and Nomura were joint bookrunners.

The coupon was fixed at 13.5% and the notes were reoffered at 98.244 to yield 14%. The notes were trading at 98.25 in secondary trading on Monday afternoon. The issue is rated B1/B+.

The deal gathered an order book of $340 million from 50 accounts. Fund managers took up 58%, private banks 35% and banks 7%. Investors in Asia bought 99% while those in Europe, the Middle East and Africa bought 1%.

Elsewhere, China real estate company Franshion Properties has mandated Deutsche Bank, HSBC, Nomura and Royal Bank of Scotland for its dollar bond issue. The roadshows started on Monday in Hong Kong, moved to Singapore yesterday, London today and the US on Thursday.

Korean steel company Posco started roadshows on Monday for its dollar benchmark. Barclays Capital, BNP Paribas, Deutsche Bank and Goldman Sachs are joint bookrunners.

Photo provided by AFP.

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