Shanghai Zendai prices bond to yield 10%

The Chinese property company prices its bond at the mid-range of guidance, closing over three times subscribed.
Shanghai Zendai took on board investor feedback last night, by pricing its B2/B+/B+ rated $150 million five-year fixed Reg-S bond at a double-digit yield of 10%, or 519bp over Treasuries. With an order book of $500 million, the transaction was over three times subscribed.

Sole bookrunner Merrill Lynch allocated 65% of the bonds to Asia, and 35% to Europe, with funds receiving 75% of the total allocation, banks 7%, private banks 13%, and insurance companies 5%. 65 investors participated in the transaction.

ôGenerally, the deal performed well. Shanghai Zendai is lower-rated than other property deals, and the pricing reflects investor expectations. The borrower is also satisfied with the outcomeö, says a source close to the deal. ôShanghai Zendai benefits from ratings from all three credit rating agencies, which shows its commitment to its investors,ö he continues.

Two other bonds issued by Chinese property companies, China Property and Lai Fung, are currently traded at 9.55% and 9.3% respectively.

The deal priced soon after China unexpectedly raised the stamp duty on A- and B-shares overnight, with the Ministry of Finance doubling its value from 0.1% to 0.3%. This caused the Shanghai and Shenzhen stock exchange to slide by 6.3% and 7.2% respectively, but still only four orders pulled out of the Shanghai Zendai transaction.

Some investors do not expect the deal to trade well on the secondary market, due to this weakening of the property sector yesterday morning.

Those that stayed out of the deal feel that the high quality names of the Chinese property sector have come and gone. Smaller, riskier credits are tapping the market - companies that are less likely to support any regulatory measures imposed by the government to reduce excess liquidity.

The PRC has already implemented a number of tightening measures with little impact on the countryÆs galloping economic growth or share prices. Further measures are expected in the second half of 2007.

According to a Standard and PoorÆs report, a heavy-handed approach is far from being the solution. ôA mix of interest, exchange and reserve rate adjustments are key to dampening unsustainable growth and long-term stability,ö says the report.
¬ Haymarket Media Limited. All rights reserved.
Share our publication on social media
Share our publication on social media