Shimao places upsized $600 million high-yield bond

Shimao Property attracts strong demand despite a flurry of Chinese real estate bond offerings in recent months.
Asia debt teams are busy closing deals at an extraordinary rate thanks to strong demand from investors and the rapid approach of bonus season. Goldman Sachs and Morgan Stanley hauled themselves up the league tables on Monday night with an upsized $600 million high-yield offering for Hong Kong-listed Shimao Property Holdings. On the same night, Morgan Stanley also closed a $100 million offering for China Orienwise.

Shimao is the fifth Chinese property developer to tap the bond markets recently û Greentown China Holdings, Agile Property Holdings, Shanghai Real Estate (SRE) and China Overseas Land and Investment all have comparable deals in the market. But the quality of ShimaoÆs land bank sets it apart from the other high-yield issuers. ôThe comparables are really not high-yield issuers but investment-grade borrowers such as China Overseas and Hopson,ö says a source close to the deal.

MoodyÆs even gave the deal a rating of Baa3, the first time a private sector Chinese issuer has been rated investment grade. Standard & PoorÆs maintained a more conservative BB+ rating, reflecting its general caution towards the Chinese property sector.

Bankers are claiming a number of superlatives for the deal. It is, they say, ChinaÆs biggest corporate bond deal for 10 years and the biggest ever for a private Chinese company.

The offer was structured in two tranches, partly to make such a big deal easier to swallow. This is a tactic that both underwriters have used on Asian high-yield deals in the past - Morgan Stanley with Galaxy Casino in Macau and Goldman with C&M in Korea. The split investment grade rating allowed the bankers to market the deal to a much broader audience than a straight high-yield deal.

By adding a floating-rate tranche, Goldman and Morgan Stanley hoped to attract commercial banks and other investors who hadnÆt been involved in ChinaÆs property sector before. The strategy appeared to work. Shimao and its team of bankers racked up more than 100 one-on-one meetings in Singapore, Hong Kong, London and the US, and generated $4 billion in demand for the proposed $500 million deal.

Satisfied with the strength of the demand, Shimao chose to bump the deal up by $100 million and tightened the pricing. The $250 million non-call five floating-rate tranche was marketed at between Libor plus 200-225bp to Libor plus 195-200bp, and finally priced at 195bp. The $350 million non-call five fixed-rate tranche dropped from the 8.25% ballpark to price at 8%.

HopsonÆs $300 million seven-year, non-call five deal matures in 2012, is rated Ba2/BB+ and trades at a mid-market yield of 8.15%. AgileÆs $400 million seven-year non-call four deal matures in 2013, is rated Ba3/BB and yields 8.77%. SREÆs $200 million 2013 issue is rated B1/BB- and yields 9.85%.

The final allocation went to 150 accounts and was sold into the US under Reg-S/Rule 144A. The five-year was split 30:57:13 between banks, funds and other investors, and 65:15:20 between Asia, Europe and the US. The floating-rate was split 20:60:20 between banks, funds and others, and 55:15:30 between Asia, Europe and the US.

Herbert Smith advised the underwriters and Freshfields advised Shimao. Commerce & Finance advised the issuer on PRC law.

Morgan StanleyÆs $100 million China Orienwise deal comprised a debt offering and warrants amounting to 4% of the companyÆs share capital. Specialising in credit guarantees and entrusted loans, China Orienwise has operations in ChinaÆs high-growth regions such as the Pearl River Delta, the Yangtze River Delta and the Capital Economic Zone. Asian Development Bank, Citigroup Venture Capital International Fund and Carlyle Fund are strategic shareholders of its parent company. The five-year non-call deal was sold under Reg-S/Rule 144A, rated Ba3 by MoodyÆs and priced at 10.5%.
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