Exchangeable into Tianjin Development draws strong demand

Tsinlien Group, a holding company wholly owned by the Tianjin municipal government, last night sold Rmb1.311 billion ($200 million) worth of five-year bonds exchangeable into its Hong Kong-listed infrastructure and utility unit Tianjin Development Holdings.

The renminbi-denominated and US dollar-settled deal was well received by the market, which allowed J.P. Morgan as the sole bookrunner to push the conversion premium to 32% -- the highest level achieved by a convertible or exchangeable bond so far this year. Essar Energy, Epistar and Asia Cement’s exchangeable into Far Eastern New Century all priced with a 30% premium, while the other four international deals in the market since the beginning of this year have all had premiums below 25%.

Aside from the fact that investors and analysts remain positive on China’s infrastructure sector, investors also like credits that are 100% government-owned as it gives them comfort that the coupons will be paid and that they will get their money back, in case they won’t be able to convert the bonds into equity. According to a source, investors tend to be more aggressive about getting a share of such deals. Tsinlien’s stake in Tianjin Development will fall to 37.5% from about 54% if the bonds are fully converted, although the issuer does have the option to settle in cash. To give investors additional comfort, the bonds have a change of control put option that will kick in of the local government’s stake in Tsinlien falls below 100% or if it ceases to hold a controlling stake in Tianjin Development.