Sunac China scraps bond amid rumours of selective disclosure

Hong Kong-listed property developer Sunac China calls off its dollar bond offering in unusual circumstances just one day into its global roadshow.

Hong Kong-listed property developer Sunac China abruptly called off its planned Reg-S/144a five-year senior note yesterday and released a statement disclosing additional information about its financials.

The company did not give any reason for calling off the deal, but its stock was suspended from trading on Tuesday morning pending the release of “price sensitive information”. It resumed trading only yesterday morning after releasing the five-page statement to the Hong Kong stock exchange.

Sunac China and its joint bookrunners — Deutsche Bank, Goldman Sachs and Standard Chartered Bank — had planned a series of roadshows in Hong Kong on March 7, Singapore on March 8, London on March 9, New York on March 10 and Boston on March 11. But, on Tuesday morning, it told investors it had cancelled its roadshow in connection with its proposed bond offer.

The statement to the stock exchange included the group’s targeted sales contracts and estimates for land-purchase expenses for 2011. It also included an estimate of the group’s overall cashflow for the end of December 2011, as well as the group’s average gross margin for the current financial year.

One interpretation, according to market participants, could be that the Tianjin-based residential property developer released forward-looking statements to investors during its roadshow earlier this week, either verbally or as part of the presentation material.

Such a mistake would be surprising. Selective disclosure of non-public information is banned in Hong Kong and, typically, roadshow presentation materials are thoroughly vetted by lawyers, company executives and bankers.

However, one investor who has met with several Chinese property developers during roadshows said that it is not unusual to be given sales targets.

The protocol surrounding the release of roadshow presentation materials is fairly strict but company executives might sometimes divulge information verbally in relation to targets and future estimates.

Whatever the reason, the sudden scrapping of the deal is clearly not an ideal outcome for either the issuer or the leads, and the messy execution has drawn surprise and criticism.

“It’s quite shocking that this would happen and it is unfortunate. However, I’m glad it’s nothing more sinister. We have a lot of property deals in the pipeline and the last thing we want is for the market to get spooked,” said one banker away from the deal.

“I suspect the leads realised that there were forward-looking statements and, since it is a Reg-S/144a transaction, they might have been worried about the reputational risk,” he added.

The banks involved in the deal declined to comment for this story.

Sunac China raised HK$2.61 billion ($336 million) in an initial public offering on the Hong Kong stock exchange in October last year, after previous failed attempts. Deutsche Bank and Goldman Sachs were joint bookrunners.

Away from Sunac, Yanlord Land has mandated HSBC, J.P. Morgan and Royal Bank of Scotland for a proposed US dollar Reg-S/144a bond offering. The transaction is expected to be launched subject to market conditions after a global roadshow that starts on March 10. The issue is expected to be rated Ba2 by Moody’s and BB by Standard & Poor’s.

Powerlong bonds trade up
Elsewhere, Powerlong Real Estate’s new synthetic offshore renminbi bonds, maturing on March 17, 2014, rose in secondary trading. The bonds traded at 99.75 yesterday afternoon, close to half a point above the 99.383 reoffer price.

The Chinese real estate company priced its Rmb750 million ($114 million) three-year synthetic offshore renminbi bond on Tuesday night, with a fixed coupon of 11.5% for a yield of 11.75%, around the area of the final guidance.

HSBC, Macquarie and Royal Bank of Scotland were joint bookrunners.

The deal attracted an order book of Rmb1.5 billion. Investors in Asia bought 95% of the deal, with Europeans taking the remaining 5%. Private banks drove the trade with retail taking up 55%, funds 39% and banks 6%.

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