Pricing of the Reg-S senior guaranteed note came ahead of the non-farm payroll data due out in the US today (Friday). The monthly report, which provides the number of additional jobs created in the US within the non-farming sector, is a leading indicator of potential inflation, and often leads to considerable market volatility on the day of its release.
Pricing yesterday, China Glass benefited from an improvement in sentiment. Yields for Asian high-yield corporates have decreased across the board by 10bp-15bp over the last two days. Issues from the property sector (Lai Fung, Shanghai Real Estate, Agile and Shimao) lifted their cash price 3/8 to 5/8 higher, according to a report from HSBC yesterday.
In these conditions, China Glass attracted $160 million in demand, pricing at par with a coupon of 9.625%. In total, 44% of the bonds were sold to asset managers, 38% to banks and 18% to private banks. Geographically, 65% of the bonds sold to Asia, 30% to Europe, and 5% to the Middle East.
In terms of comparables, some investors felt that Chinese property paper was a suitable measure, since 70% of the glass manufactured by China Glass is destined for the construction industry. Yesterday, Lai Fung's 2014s were trading at 9.45%, while China Property's 2014s were trading at 9.9%. Shanghai Zen DaiÆs 2012s, meanwhile, were trading at 10.65%. Investors also looked at non-property comparables including Asian AluminiumÆs 2011s, which were trading at 8.30%, and China Fisheries 2013s which stood at 8.26%.
However, a sell-side specialist states: ôThere are no direct comparables. Most investors focused more on the raw figures, which point to a substantial increase in Ebitda.ö Indeed, recent acquisitions have allowed the company to increase the number of production lines it operates from five to 14. As a result, Standard and PoorÆs expects China GlassÆ Ebitda to increase to between Rmb400 million and Rmb730 million within the next five years. Its Ebitda currently stands at Rmb46 million.
Sources on the buy-side stated earlier this week that guidance did not offer adequate reward for the companyÆs high degree of leverage. They noted that IndonesiaÆs similarly-rated Central Proteinaprima (CPP) offered a higher premium (11%) and better prospects, pointing to the fact that CPP operates in the buoyant shrimp-farming industry, as opposed to the saturated Chinese glass industry.
However, one investor who yesterday spoke to FinanceAsia felt otherwise. ôCPP priced at 11% for a reason. The risk factors on that transaction are not present here.ö He added that yesterdayÆs deal offered good value relative to single-B Chinese property deals, as well as better parentage and management. Further, he felt reassured that the companyÆs acquisitions had been for the most part completed, thereby exposing bondsholders to lessened execution risk.
ôIÆm glad to have the opportunity to buy paper from a company not operating in the Chinese property sector. Also, strong shareholder names give me confidence the company will understand what investors want and that their interests are in line with mine. This is all the more important with single-B names.ö
China GlassÆ reputable shareholders include Chinese equity firm Hony International which owns 33.8%; Pilkington, a subsidiary of Nippon Flat Glass (28.9%); and IFC (8.1%). Hony is associated with Legend, which owns many companies including PC maker Lenovo. Pilkington, meanwhile, is a technological leader in the glass industry.
Other investors were simply too cautious to invest in an Asian high-yield for the time being. ôChina Glass is leveraged, exposed to the Chinese property sector, and there is no guarantee that Standard Chartered will be able to support the deal in the secondary market,ö said one.
China Glass has a high level of debt, with a gearing ratio currently standing at 29.7%, according to the offering circular. While this ratio has reduced from a level of 38% in December 2004, it is still high. Net current liabilities also stand at Rmb1.01 billion, compared with Rmb2.1 million in 2004. The companyÆs debt-to-Ebitda ratio is 7.43%, according to a Standard and PoorÆs report.
While one trader was doubtful the bonds would perform well on the secondary marker, sources on the sell-side note that yesterdayÆs industrial yields tightened more than Chinese property. As always, time will tell.
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