Asia’s bond market is on pace for a record-breaking year.
The $144.9 billion of bonds sold by issuers in Asia Pacific ex-Japan so far this year is already 70% higher than the same period in 2016, according to Dealogic data. Debt bankers are busier than they have ever been, and investors are getting a diverse range of credits to choose from.
But there are clear hurdles.
The French election, and rising tensions between North Korea and the United States, have raised increased geopolitical risks. The tumbling yields offered by Treasuries suggests investors are becoming ‘bearish’, said a Singapore-based fixed income investor.
It was in this context that Times Property, a single B rated mainland property developer, and Halcyon Agri Corp, a Singapore-listed rubber producer that had never before issued in the market, launched their own dollar bonds on Wednesday.
The two deals proved that, even if investors can point to risk factors on the horizon, they are still hungry for new deals. Perhaps just as importantly, the two bonds held up in the secondary market on Thursday.
Get with the Times
Times Property, a single B rated mainland property developer, returned to the international bond market for the second time this year, raising $225 million from a new five-year note.
The Hong Kong-listed company’s Reg S deal received a warm reception from investors, getting $1.1 billion of orders at the end of the marketing campaign on the back of a broad-based weakness in regional market. In January, the group garnered more than $2.3 billion of orders for a three-year bond.
On Wednesday morning, Times Property — rated B1/B+/B+ by Moody’s, S&P and Fitch — approached investors with an initial price talk of “the 6% area”, before narrowing the deal to “5.75% the number”. Final pricing of the 2022 bond was fixed at par to yield 5.75%, according to a term sheet seen by FinanceAsia.
Bankers used the company’s outstanding 6.25% $375 million January 2020 bond as a valuation reference. The bond, which is callable in two years, was trading at a yield of 5.07% on Wednesday morning.
Based on the the secondary curve of Road King, another Chinese developer, the yield differential between a five-year and a three-year bond is around 70bp. Taking that curve extension into account, Times Property’s new deal should be at around 5.77%, according to a syndicate banker’s estimate — meaning the bond priced roughly in line with far value.
In the secondary market, the bond was quoted 99.85/100.1 on Thursday afternoon, hovering near its reoffer price, according to market data.
Times Property plans to use the proceeds to refinance some of its outstanding debt, including a Rmb1.5 billion 10.375% note due July 2017.
The bookrunners of the deal were UBS, Citi, Deutsche Bank, Haitong International, JP Morgan, SPDB International.
Halcyon days
Halcyon Agri Corp, a Singapore-listed rubber producer, sold its first dollar bond, raising $150 million from a perpetual non-call two-year bond.
The Singapore-listed company pitched its dollar debut at “the 4.75% area” before narrowing the unrated issue to “4.5% the number.” Final pricing was fixed at par to yield 4.5%, according to a term sheet seen by FinanceAsia.
“The deal was pretty investor-friendly,” said a syndicate banker running the deal, citing to a 500bp step-up in case the issue decides not to redeem the bond.
The coupon is fixed in the first two years. If the company does not execise the call option in year two, the coupon will be reset to the prevailing two-year US Treasury yield plus a spread of 331.1bp — and the 500bp step-up on top.
Sinochem bought a majority stake in Halcyon last year, merging its own rubber business into the company. Bankers emphasised the move to investors, pitching them a growth story with a solid China angle.
“There is some halo effect from Sinochem,” said a banker close to the deal.
The deal was sold largely to private banks, who were allocated around 66% of the bonds. Funds and banks took 24% and 10%, respectively.
The majority of the bond was sold to Asia investors, leaving the remaining 7% to European accounts. “After meeting investors in Hong Kong and Singapore last week, the price discovery process among institutional investors was quite wide,” a banker said.
The company plans to use the proceeds to refinance its outstanding debt, as well as for general corporate purposes. It has $100 million worth of Singapore dollar bonds outstanding. These bonds become callable in July 2017.
To figure out fair value, bankers used Sinochem’s 5% perpetual bond as the main benchmark. The bond, which is callable in February 2018, was quoted at a yield of 3.39%, suggesting Halcyon’s deal was priced generously to compensate investors for taking additional credit and corporate risks.
Credit Suisse and DBS were the bookrunners.
