China Aoyuan Property became the first Asian issuer to tap the dollar bond market in 2017, raising $250 million from a three-year benchmark bond on Wednesday.
The B2/B/BB- rated developer built an impressive order book of $2.5 billion at peak level, as investors brushed off cooling measures in China that could hurt home sales and reduce onshore liquidity.
But China Aoyuan was tapping the market at a good time, turning to investors less than a week after Fitch upgraded the company. The ratings agency boosted China Aoyuan’s rating to BB- from B+, pointing to strong sales, smart land acquisitions, and strong liquidity.
This no doubt helped the Guangzhou-based company get explosive demand for its issue. The bookrunners managed to generate demand of $2.5 billion by the time they closed the order book, after telling investors that the deal would not be worth any more than $250 million.
The bookrunners first approached investors with price guidance of the 6.75% area, before narrowing that to 6.35% on the back of strong demand. The Reg-S deal eventually priced at par with a 6.35% coupon.
The closest comparable was China Aoyuan’s outstanding April 2019 6.525% $250 million bond, which was trading on a bid price of 101% to yield 6.048% on Tuesday. That implied the new deal priced in line with curve, said a banker familiar with the deal.
The company plans to use the proceeds of the bond to refinance existing debt and general working capital, although investors and bankers expect the company to call its outstanding $300 million 11.25% 2019 bond, which becomes callable later this month.
The final order book closed at $2.25 billion from 173 accounts. By geography, Asia took 88% and the remaning 12% went into EMEA investors. By investor type, asset managers took 87%, private bank 11% and others 2%.
China Aoyuan is a little different to many mainland property developers, having started to look outside its domestic market for growth. The group made its first foray into the Australia property market in 2015, and bought another two residential projects in Sydney for A$55.5 million. It plans to generate around 10% of its income overseas in the near future.
The company has forecast its sales to reach Rmb30 billion this year, after showing a 69% year-on-year increase to Rmb25.6 billion in 2016.
AMTD, Bank of America Merrill Lynch, China Merchants Securities Hong Kong, Deutsche Bank, Guotai Junan International, Haitong International, SC Lowy and UBS were the bookrunners of the bond.
