Greenland Holdings and Jiangsu NewHeadline Development completed aggressively priced dollar bond offerings on Monday, taking advantage of quiet markets and relatively strong momentum.
The concept of a summer holiday appears to have passed Asia by this year, following $1.85 billion of issuance from four G3 bonds last week and the prospect of heavy supply over the coming two weeks as issuers rush to market ahead of possible Fed induced volatility later this month.
Treasury yields spiked late last week following Janet Yellen's hawkish speech, which raised the odds of interest rate increases in either September, December or both. By the end of the week 10-year Treasuries were around the 1.64% level compared to 1.56% at the beginning of the week, although they fell back to the 1.56% level during New York hours on Monday.
Greenland Holding's $300 million three-year issue was the biggest of the day and on the surface something of a surprise given its Hong Kong-listed entity, Greenland Hong Kong Holdings, raised $570 million only one month ago.
However, its rapid return to market is less of a shock in the context of debt funded expansion, which has seen its former investment grade credit status shredded by the international rating agencies, which warn that more debt is likely.
The group's rapid growth over the past few years means it is now China's largest property developer by sales, overtaking China Vanke and China Evergrande.
Proceeds from the new issue are being used to fund an ambitious overseas expansion plan, which has recently seen Greenland Holdings secure a credit line from China Development Bank to invest in a portfolio of Rmb78 billion ($11.68 billion) projects at home and overseas.
However, declining credit metrics do not appear to have put investors off, with the three-year Reg S deal attracting a peak order book of $2 billion.
Distribution stats show that 91% was placed in Asia and 9% in Europe of which just over half 52% went to private banks, 42% to fund managers and 6% to banks.
Demand was lower than the $4.5 billion subsidiary Greenland Hong Kong achieved for its $450 million three-year deal at the end of July. But it was still strong enough to facilitate pricing at 3.6%, a 40bp tightening versus indicative pricing around the 4% level.
The issue price was fixed at 99.718% on a coupon of 3.5%.
Final pricing came through secondary market levels given that the group’s outstanding $400 million 4.375% July 2019 bond was trading on a mid-price of 101.66% on Monday to yield 3.753%.
The issuance vehicle was Greenland Global Investment, which has a direct guarantee from parent Greenland Holdings. It has a Ba2/BB/BB+ rating and is on negative outlook from all three agencies.
By contrast, the late July offerings were issued by Greenland Hong Kong Holdings, which has a less secure keepwell structure and consequently a lower Ba3/B+/BB+ rating (again all negative).
Neither of the two late July deals have traded particularly well. The $450 million 3.875% July 2019 issue is currently trading on a mid-price of 99.91% to yield 3.908%. It was priced at 99.301%.
Bankers said its $120 million 5.625% fixed to floating senior unsubordinated unsecured perpetual deal has fared slightly better as it attracted secondary market buying from private banking investors.
Greenland Holdings purchased a majority stake in what is now Greenland Hong Kong in 2013 and is, in turn, 46%-owned by Shanghai SASAC. The extent to which the Shanghai government is prepared to stand behind group debt is one of the key reasons why Standard & Poor's ratings have diverged from Moody's and Fitch.
S&P has said that affiliate Yunfeng's default has made it less likely and the agency has consequently removed the one notch uplift it had previously accorded Greenland Hong Kong.
However, investors may have been comforted by relatively strong first half results, released in mid-August, which saw revenues rise 25.6% year-on-year to Rmb108 billion and more importantly cash collections jump by 45% over the same period.
In a rating release on Monday, Fitch said that "Greenland's high leverage is mitigated by the sizeable off-balance sheet uncollected sales proceeds from both residential and commercial property sales, which exceeded its annual sales at the end of 2015." The agency said leverage stood at 74% at the end of June compared to 62% at the end of 2014.
Jiangsu NewHeadline
The second bond deal of the day was a $100 million tap by Jiangsu NewHeadline, which first raised $200 million back in January.
Bankers said the group had been waiting for the right market conditions to top up the issue, having originally secured approval to raise $350 million.
After initially marketing the deal on an indicative re-opening price of 103.15% to yield 4.75%, final pricing was fixed at 103.878% to yield 4.425%.
This represented a fairly aggressive 32.5bp tightening from initial levels but bankers said the issuer felt justified by a peak order book of $550 million.
The final order book closed at $380 million with participation from 33 accounts. By geography, Asia took 97% and Europe 3%. By investor type fund managers took 64% with banks on 34% and private banks the remaining 2%.
Private banks were far less noticeable in the new transaction compared to January, as there was no private banking rebate.
Pre-announcement, the existing 6.2% January 2019 deal was trading around the 104% level. It has come off slightly since a mid-August high around the 104.89% level but has traded extremely well since issue, rising almost five points from par.
The issuance vehicle, BB/BB+ rated Zhiyuan Group (BVI) Ltd, has a keepwell deed from Jiangsu NewHeadline, which is the largest financing and investment company of the Lianyungang Municipal Government in Jiangsu province.
Joint global co-ordinators were Guotai Junan (lead left) and Bank of China, with CNI Securities as joint lead manager.
