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Chinese property developer Soho China raised $1 billion through the sale of a high-yield bond on Wednesday night, following in the footsteps of several other Chinese builders.
The company announced in the morning that it would issue a single five-year tranche, with initial price guidance of around 6.25%, but added a 10-year tranche after the lead banks attracted almost $3 billion of demand before lunch. Within two hours of announcing the new tranche, it had drawn more than $1 billion of orders.
That strong demand gave Soho the opportunity to tighten the price guidance. The $600 million five-year tranche (with no call for three years) offered a yield 5.75% and the $400 million 10-year tranche (with no call for five years) had a yield of 7.125%. Both portions were priced at par.
This was the first time that international investors have had the chance to buy Soho’s bonds. It is one of the country’s leading property developers and enjoys a high profile thanks to its husband-and-wife owners Pan Shiyi and Zhang Xin, one of China’s richest self-made women.
The couple anticipated government measures to cool the property market by shifting their focus to the commercial side of the business, which has not suffered as much from the tightening.
They took the company public in Hong Kong in October 2007 with a $1.66 billion initial public offering that attracted $28 billion of demand from retail investors alone — though at HK$5.40 it is still trading far below its pre-crisis IPO price of HK$8.30.
Even so, the company remains an attractive name for investors thanks to the quality of its business. The Chinese property sector in general is also in demand at the moment, as Yuzhou Properties demonstrated on October 18 when it priced a $250 million high-yield deal. The company is rated single-B and paid a coupon of 11.95% on its five-year deal.
However, the high-yield market has not been open to all borrowers. China Hongqiao and Xac Bank were both forced to cancel deals around the end of September due to a lack of interest. Others have fared better, including Longfor Properties and Sunac China, which both raised $400 million in early October.
The bonds are rated Ba1 by Moody’s and BB+ Standard & Poor’s, which has a negative outlook on Soho’s credit.
“The rating on Soho reflects the company's fairly concentrated project portfolio and lumpy (or periodically bunched up) property sales. We also see some execution risks with the company’s aggressive plan to shift its business model from build-to-sell to build-to-hold,” said S&P credit analyst Christopher Lee. “These weaknesses are tempered by our view that Soho has a high-quality property portfolio, established market position and prudent financial management.”
Soho went on a roadshow during the week of October 29 to meet with investors in Hong Kong, Singapore and London.
The final order book came to $8.25 billion across both tranches, with orders from a broad range of investors. Geographically, the allocations for the five-year tranche were roughly distributed 82% to Asia, 16% to Europe and 2% to offshore US investors (under Regulation S), and 74% to Asia for the 10-year, with 18% to Europe and 8% to offshore US investors.
The breakdown of investor types was roughly 41% fund managers, 52% private banks, 5% institutions and corporates, and 3% banks for the five-year tranche, and 47% fund managers, 42% private banks, 7% institutions and corporates, and 4% banks for the 10-year tranche.
Barclays, Goldman Sachs, HSBC, Morgan Stanley and Standard Chartered were joint bookrunners.
