Wharf scores well with $400 million bond

Wharf Financial Limited raises the full amount, prices at the tight end, and trades up in the secondary market.
Wharf Financial Limited, a subsidiary of Wharf Holdings, has succeeded in pricing the first corporate investment-grade deal since the subprime troubles hit the market in June. The company offered a $400 million 10-year Reg-S deal on Monday at 110bp over mid-swaps, or 173.5bp over 10-year Treasuries, racking up a total order book worth $1.4 billion.

Bookrunners HSBC and UBS managed a speedy execution. The transaction was announced at 9.30am on Monday morning Hong Kong time, with an initial guidance of 110bp-120bp released an hour later. Guidance was then revised and tightened to 110bp-115bp, with the deal pricing at the tight end at 6.30pm that same evening. The deal eventually closed at the top end of an initial size range of $300 million-$400 million.

The transaction benefited from a pause in the markets with Asian bonds holding steady while investors wait for a US Federal Reserve policy decision due today. Wharf benefited from the rarity value of its paper (the last dollar-denominated bond issued by the company dates back to 1997 when it issued a $350 million bond via Merrill Lynch, JPMorgan and HSBC), and a well-established presence in Hong Kong.

A syndicate banker not involved in the deal states: ôThis was a good deal. It came with a good bit of value which was needed to entice investors and build a good order book. Moreover, the company achieved the size that it wanted, and the bonds have performed well on the break.ö

A total of 70 accounts participated in the deal, with 48% of the bonds selling to banks, 42% to fund managers, 6% to insurance companies, 2% to retail, and another 2% to others. In terms of geographic distribution, 81% of the bonds sold to Asia-Pacific, with the remaining 19% selling to Europe.

A rival syndicate banker comments that the bookrunners should have targeted a wider range of investors in order to maximise the distribution of the paper, noting the low amount of European participation. However, recent Reg-S investment-grade deals have all sold at least 80% of their bonds to Asia, which could reflect either a lack of effort to diversify distribution by the syndicate teams, or simply echo the on-going reluctance from European firms to invest in dollar-denominated, non-European assets.

Others were thankful that the bonds actually traded up in the secondary market. Recent Reg-S deals - those that did not benefit from US demand such as NACF and Pusan Bank û have performed somewhat disappointingly in the after market, but Wharf tightened yesterday morning by 4.5 basis points up to a bid of 169 over 10-year Treasuries.

One investor states: ôWharf came to market and priced a 10-year deal at a reasonable spread, and the bonds are now trading tighter than close comparable Kerry Properties' 2016 bonds. Since Kerry is rated a notch lower, WharfÆs bonds are trading were they should be.ö

At the time the Wharf deal was announced, Kerry Properties 2016s (rated BBB-) were trading at 193bp-178bp over Treasuries, SwireÆs 2016 (A3/A) at 115bp-105bp over Treasuries, while HutchinsonÆ 2017s stood at 135bp-125bp over Treasuries. "Pricing levels offered sufficient value to generate a good book, and allowed the deal to trade in by a satisfactory amount on the break,ö says a syndicate bank.

The deal closed with a yield of 6.141%, at a price of 99.882, with a semi-annual coupon of 6.125%.

Wharf Financial was reportedly the first Hong Kong company to issue a publicly-traded yankee offering in 1994, via Morgan Stanley. This deal struggled in the secondary market after a fall-out among the companyÆs underwriters over its pricing. Two of the three original underwriters (Merrill Lynch and JPMorgan) jumped ship due to, some market participants say, Wharf's unrealistic pricing expectations.

Funds from Monday's deal will be used for general corporate purposes. The Wharf groupÆs operations are organised into Hong Kong investment properties (with a flagship property, Harbour City, located at the tip of the Tsim Sha Tsui peninsula, and Times Square, a landmark property in Hong KongÆs busiest shopping district), and China-based properties (Shanghai Times Square, Beijing Capital Times Square). The group also currently has a 67.6% interest in Modern Terminals, a leading operator of container terminal facilities in the South China region.
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