Shui On Land plans US dollar bond next year

The dollar deal will follow on the back of an offshore renminbi bond that the property developer will start marketing today. The two transactions are expected to raise a combined $600 million.

Shui On Land is expected to start a roadshow for an offshore renminbi bond in Hong Kong today. The roadshow will continue to Singapore tomorrow and to London on Wednesday, with pricing expected by the end of this week. Deutsche Bank, Standard Chartered and UBS are joint bookrunners.

The company is also planning a US dollar bond, which it is expected to launch in the first or second quarter of 2011 via the same bookrunners, according to a source.

Shui On Land is the flagship property developer of the Shui On Group in mainland China. It is headquartered in Shanghai and listed on the Hong Kong stock exchange.

Shui On Land’s renminbi bonds will be US-dollar settled and it is believed to be the first issuer to sell a synthetic offshore renminbi bond in the public markets. Elsewhere in Asia, the Republic of the Philippines and Philippine oil refiner Petron Corp have issued US-dollar settled peso-denominated bonds to offshore investors in the public market.

According to a source, Shui On Land has assets in US dollars and wants to keep its liabilities in dollars.

Shui On Land is the latest company to jump on the bandwagon to tap the rapidly flourishing dim sum bond market, as the offshore renminbi bond market in Hong Kong is known. Keen to diversify out of US dollar bonds and to gain exposure to the appreciating Chinese currency, investors have ploughed into such bonds. This has driven the cost of funding down for issuers.

And a growing number of issuers are eyeing the dim sum bond market. Korea Development Bank (KDB) has mandated Deutsche Bank and HSBC for an offshore renminbi bond to raise up to $150 million equivalent.

KDB, which is wholly owned by the Korean government, is expected to be the first Korean bank to tap the dim sum market. If its cost of funding is competitive, other Korean banks such as Industrial Bank of Korea could follow its lead.

Last week, two new issuers tapped the market and were warmly welcomed by investors. Macau casino operator Galaxy Entertainment priced the first high-yield offshore renminbi bond.

The gaming company closed a Rmb1.38 billion ($207 million) three-year Reg-S bond last Thursday amid exuberant demand. The deal was more than 10 times subscribed with Rmb13.5 billion worth of orders, allowing it to be upsized from Rmb1 billion.

The bonds were issued at par and promptly traded up to 101.25 last Friday morning (Hong Kong time). The coupon was fixed at 4.625%, well inside the price whisper at the 5% area +/- 12.5bp. The issue is unrated.

Asian accounts took up 97% and Europe the remaining 3%. By investor type, fund managers bought the bulk, or 47%, banks 33%, private banks 17% and others 3%. The deal priced following a two-day roadshow in Asia and drew robust support from real money accounts, bank treasury accounts and private banks. There was participation from more than 80 investors.

Bank of America Merrill Lynch, BOC International, HSBC and UBS were joint bookrunners.

Meanwhile, VTB Bank, became the first Russian issuer to tap the dim sum market when it closed its Rmb1 billion ($150 million) three-year senior unsecured Reg S bond last week. VTB Bank is the second largest bank in Russia by assets, loans and deposits.

The deal was seven times subscribed and the coupon was fixed at 2.95%, at the tight end of revised price guidance of 3% area. The bonds were offered at par.

By geography, Asian investors took up 90% and others 10%. Within Asia, Hong Kong bought 54%, Singapore 32% and the rest of Asia 4%. Fund managers took up the lion’s share (51%), followed by retail (32%), corporate (9%) and banks (8%).

HSBC and VTB Capital were joint bookrunners. VTB Bank is rated Baa1/BBB/BBB (Moody’s/S&P/Fitch).

A slew of US and European issuers, particularly those with subsidiaries in the mainland, are also looking to issue dim sum bonds to meet their onshore funding needs. They are said to include the likes of Volkswagen, aluminium producer Rusal, Walmart and Toys “R” Us.

However, regulatory issues may hamper issuance from companies that want to remit funds raised back to the mainland.

“I think the renminbi offshore market will grow in 2011. There is a lot of demand for renminbi bonds, with investors looking to diversify out of US dollar bonds. The main question is whether issuers can obtain regulatory approval to remit renminbi funds back to China. The onshore market is very much the main event unless there is a change in regulations,” said Kenneth Poon, head of Asia-Pacific capital markets origination at Citigroup.

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