Vista Land & Lifescapes, the Philippine property developer, returned to international bond markets on Thursday with a combined tender offering and dollar-denominated bond issue.
The group's liability management exercise was designed to extend its maturity profile and retire more expensive debt rather than increase its gearing.
Vista Land's bond issue comprised a $300 million seven-year transaction with a 2022 maturity that was priced at 7.5% after initially being marketed at 7.75%.
Proceeds from the unrated Reg S deal are being used to fund a tender offering for two existing bonds and re-pay the outstanding $50 million principal on a bond that matures in September.
The tender offering, which closed one day earlier on June 10, involves Vista Land's $100 million 6.75% 2018 notes and its $350 million 7.45% 2019 notes. The company offered to buy back the 2018 notes at 102.5% and the 2019 notes at 104.75%.
The more liquid 2019 notes were being quoted on Wednesday at a bid price of 102%, equating to a mid-yield 6.88%. They were originally issued in April 2014, when the company raised $225 million. It then re-opened the transaction in September, adding a further $125 million.
April's transaction was also accompanied by a tender offering for the group's $150 million 8.25% 2015 bonds. This led to $100 million of the more expensive debt being retired.
This time round the group has been able to extend its maturity profile by an additional three years, paying only 5bp more on the coupon. In return, investors are getting a 62bp pick-up relative to the secondary market trading levels of the existing 2019 debt.
Vista Land's growing brand name within the Philippines credit universe was rewarded with a $1 billion order book, its largest ever. However, most of the allocations went to investors who had participated in the tender offering.
The tender offer had an unusual structure, which has only been deployed once before in Asia when International Container Terminal Services raised $300 million from a combined tender and new issue in January.
Instead of submitting bonds into the tender and then hoping to get an allocation in the new issue, investors have been able to submit an allocation code to their tender agent instead. This guarantees them an allocation in the new bond.
"It's been tried and tested in Europe," one banker said. "Investors like it because it reduces any uncertainty about whether they will get an allocation or not."
Vista Land's growing liability management expertise is also likely to be making investors more comfortable with its underlying creditworthiness.
The property developer, owned by former senator Manny Villar, has the highest yielding bonds in the Philippines universe by some margin. The only other issuers that come anywhere close are San Miguel and ICTSI, also both unrated.
San Miguel, the diversified conglomerate including food and drink businesses, has a 4.875% 2023 bond, which is currently trading on a mid-yield of 5.35%. The port operator has a 4.625% bond callable in 2023, which is trading on a mid-yield of 4.5%.
Gearing coming down
In a recent research report, UBS said it believed the company's gearing peaked in 2014 and would progressively fall as it started to ramp up its commercial and retail property developments.
At the end of 2014, Vista Land had a net debt to equity ratio of 58.7%. By 2018, UBS expects this to have dropped to about 35%.
Debt to Ebitda stood at 5.1 times at the end of 2014, up from 3.6 times the previous year. The company's interest coverage ratio stood at 5.7 times.
Vista Land is trying to transform itself from pure property development towards a more balanced revenue mix. By the end of 2017 it is hoping that recurrent revenues from its new commercial and retail properties will account for about Ps1 billion.
The company recently released first-quarter earnings, which showed a 10% year-on-year increase in net profit to Ps1.6 billion, backed by revenues of Ps6.582 billion.
During 2014 the company derived 74% of its revenues from mass-market housing. It currently ranks as the Philippines' largest developer in this category, with projects in 76 cities. But analysts expect middle income and high-end housing to play a more prominent role over the coming years.
This is because its most important landbank is situated just off the Muntinlupa-Cavite toll-road south of Manila, which will open in a few months. This 700-hectare project, known as Daang Hari, will generate more revenue from its Brittany (high-end) and Crown Asia (middle-income) business units.
It is also where it will start to derive recurrent revenue from its commercial and retail developments.
Lead managers for the bond deal and tender offering were DBS and HSBC, with BDO Capital and China Banking Corp as domestic lead managers.