Sun Hung Kai Properties, Hong Kong’s largest developer by market capitalisation, returned to the international bond market for the first time in three years, pricing a $500 million fixed-for-life perpetual bond at the lowest-ever coupon paid by any Asian issuer in the structure.
The Hong Kong-listed developer — rated A1 by Moody’s — tapped the Reg-S market on Tuesday morning, less than a week after a major rival, Cheung Kong Property, sold the largest-ever fixed-for-life perpetual, raising $1.5 billion from a senior hybrid that is callable in 2020.
Although it was rated one notch higher, Sun Hung Kai generated about $3 billion of orders at the peak level, compared with the $8 billion book Cheung Kong built last week. The final order book for Sun Hung Kai's perpetual settled at $2 billion from 143 accounts, much lower than Cheung Kong’s $6.9 billion worth of final demand from 249 accounts.
Some investors put that down to a short-term shift in sentiment. “High beta names continued to be sold off in the Asian high-yield universe, with institutional funds locking in profits,” a Singapore-based fund manager told FinanceAsia.
But it can hardly be overlooked that Sun Hung Kai went to investors with ambitious pricing. On Tuesday morning, the company pitched investors with initial price talk around "the 4.75% area", before slashing guidance by 30bp to "the 4.45% area". The bond ended up pricing at par with a 4.45% coupon, according to a term sheet seen by FinanceAsia.
That was 15bp inside the previous tightest coupon for a perpetual bond sold by an Asian issuer — albeit one that was set by Cheung Kong Property last week. The company's fixed-for-life senior perpetual paid 4.6%.
Given the same industry exposure and close timing, bankers used Cheung Kong’s freshly-issued perpetual bond as their major benchmark. The bond was quoted at a yield of 4.65% on Tuesday morning and trading on 4.6% at one point during the day, according a syndicate banker running the deal.
“The Sun Hong Kai deal was priced inside Cheung Kong by 10-15bp, reflecting its higher rating and rarity in the market,” the banker added.
In the secondary market, the new Sun Hong Kai perpetual was trading a tad tighter on Wednesday morning, being quoted at 100.1 on the bid side, according to market data.
Asian investors took the majority of the deal, leaving the remaining 12% to European accounts. By investor type, fund managers took 59%, private banks 17%, insurance and pension funds 18%, banks 5%. The remaining 1% went into public sector.
Bankers have plenty more deals to launch before the end of the week, but investors warned their appetite was waning.
“The overall market condition has softened after the US last Friday reported some disappointing retail sales figures and inflation numbers in April, raising questions about the health of the US economy,” said the Singapore-based investor.
US retail sales rose less than expected in April, at 0.4% month-on-month, missing estimates for a gain of 0.6%. Core consumer prices rose 1.9% year-on-year last month, coming in below the previous month’s reading of 2%.
“The market is now looking for a rate hike and a half, even though the US Federal Reserve has projected two more hikes this year,” the fund manager said.
HSBC was the sole global coordinator of the deal, while Citi and Standard Chartered were joint bookrunners.