Xinyuan Real Estate joins dollar bond rush

Risk-on appetite helps the US-listed Chinese property developer to price a new $300 million bond, after drawing more than $3.2 billion of orders.

US-listed Xinyuan Real Estate met with strong investor demand on Tuesday as it became the latest mainland Chinese property developer to tap dollar bond markets, raising $300 million from a four-year bond to refinance some of its more expensive outstanding debt.

The Reg S deal was more than 10-times oversubscribed, with an order book of $3.2 billion, a banker running the deal said, providing further proof of the Asian market's current upbeat tone.

Xinyuan, headquartered in the city of Zhengzhou, the capital of east-central Henan province, completed its $245 million initial public offering in 2007 and is the first real estate developer from China to be listed on the New York Stock Exchange.

The company, which is rated B/B by S&P/Fitch, reported a drop in fourth-quarter net income on February 14 as contracted sales in China sank to $347.8 million from $574.2 million in the same year-ago period. But earnings for the full year were higher.

“The uncertainty in Europe is likely to restrain US Treasury yields to a degree,” the syndicate banker said, contributing to the attractiveness of Asian corporate bonds.

Other benign, technical factors include the market's ample liquidity and relative lack of supply, which are helping to underpin pricing and prompting investors to search down the credit metrics for higher returns. The bustling flow of high-yield debt offerings in recent weeks bears testament to all these factors, the banker said.

Spreads on Asia’s investment-grade and high-yield corporate bonds, the premium over and above the return on risk-free US Treasuries that investors demand for holding riskier credits, have narrowed since the November 8 US presidential elections and are heading to their tightest levels since 2008 thanks to robust investor demand.

So far this year, Asia’s high-yield issuers have raised $8.5 billion worth of G3 bonds compared with the $1.65 billion sold in the same period last year, data from Dealogic shows. In part, that's because investors have been more willing to scoop up riskier debt issued by Chinese property developers in the face of the country’s volatile property market.

“Investors have been more receptive to junk-rated bonds in Asia after the US Federal Reserve kept their interest-rate policy unchanged,” a Singapore-based investor told FinanceAsia. “The hunt for yield is alive and well in the market.”

Pricing

The lead managers on the Xinyuan deal – Deutsche Bank and Morgan Stanley – went out on Tuesday morning with an initial price talk in the 8.5% area, before narrowing the Reg S deal to 7.95% area. Final pricing of the February 2017 was fixed at 99.326 on a coupon of 7.75 to yield 7.95%, the tightest end of the marketing range, according to a term sheet seen by FinanceAsia.

The closest comparable is Xinyuan's outstanding $300 million 8.125% August 2019 note, which traded at a cash price of 101 to yield 7.699% on a yield-to-call basis. That said, the new four-year bond was priced inside the company's outstanding yield curve, according to a banker's estimate, underscoring how funding costs continue to shrink for Asian borrowers.

The company plans to use the new proceeds from the debt sale to refinance its outstanding June 2019 bond, which pays a coupon of 13% and can be redeemed at a cash price of 106.5 in June this year.

The joint bookrunners for the new deal were Bank of China, Barclays, CMB International, Guotai Junan International, Haitong Securities.

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