Yuhuang raises dollars amid US expansion plans

The privately held chemical company raised $300 million from the bond market, giving a boost to its plan to expand into the US.

Shandong Yuhuang Chemical, a privately-owned Chinese petrochemical and refinery company, made its first foray into the international bond markets this week, selling a $300 million bond that will help it finance the construction of a methanol plant in the US.

The company got eye-catching demand for the bond, drumming up more than more than $2.2 billion of orders from 180 accounts, according to a syndicate banker on the deal. That is an unusually large amount for a single-B debut issuer — and gives a clear demonstration of the buoyant state of Asia’s debt market.

The success of the deal came despite a reasonably sceptical treatment from rating agencies.

S&P Global rated the bond B+, but raised questions about Yuhuang’s plan to construct a methanol plant in the US. Both the business and the country will be new to Yuhuang. Fitch was more flattering — giving the company a positive outlook to go along with its B rating — but also highlighted the risks of the plan.

Yuhuang wants to spend around $1.2 billion on the US plant, and has teamed up with Koch Industries to do so. The plant will be funded by an $800 million loan facility, the new bond, and around $160 million of equity from Yuhuang.

This all meant the bond financing needed to go smoothly — and it did just that.

A lack of comps

“The size of order book was quite impressive for a debut issuer in the dollar market,” the person said. “There was a significant amount of interest after meeting investors in Hong Kong, Singapore and London last week. The book contained a good mix of traditional institutional funds and specialised investors in the sector.”

The bookrunners, Credit Suisse and Standard Chartered, went out with initial price talk at the “7.25% area” on Monday morning, before tightening the Reg S deal to 6.875% the number. Final pricing of the March 2020 bond was fixed at 99.333 on a coupon of 6.625% to yield 6.875%, according to a term sheet seen by FinanceAsia.

Syndicate bankers said there was no direct comparable to the new issue because of small scale of the business and its lack of a listing. They pointed out Shandong Ruyi Technology’s outstanding 7.5% December 2019 bond as one of the closest benchmarks because of the geographical proximity, albeit in a different industry. The bond was quoted on a bid price of 102.75 to yield 6.39%; Ruyi Technology, rated B3/B- by Moody’s/S&P, is a textile and garment company.

Kangde, a Shenzhen-listed company producing coating and laminating film materials, served as a second valuation yardstick. The outstanding March 2020 bond was quoted on a bid price of 102.3 to yield 5.16%.

“The final pricing of Yuhuang Chemical's bond has compensated investors for taking additional risks from the greenfield project in the US, as well as being a private company with a lack of earnings visibility,” said a banker.

Yuhuang's chief executive, Wang Jinshu, owns 62% of the company. The remaining 38% is owned by a group of nine unnamed individuals.

The 20-year old company produces a mix of basic chemical and synthetic materials, such as liquefied gas, gasoline and polybutadiene rubber, a high-resistance material used for making tires and golf balls.

According to its offering document, the company’s total assets reached Rmb21.46 billion in the first half of 2016, up from Rmb20.83 billion in 2015. The company's earnings before interest, taxes, depreciation and amortisation was Rmb1.415 billion in first half of 2016, compared to Rmb 2.44 billion for the full-year 2015.

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