China Vanke, the mainland’s biggest homebuilder, raised $800 million from its debut in the dollar bond market on Thursday night, attracting $7 billion of demand.
Investors were keen to buy Vanke’s paper because it is the highest-rated borrower in China’s property sector, which allowed it to tap the bond market even in the wake of government measures designed to cool property speculation.
In a strange piece of timing, the company’s chairman also chose to give an interview to 60 Minutes for a segment that exposed the scale of China’s property bubble on primetime television.
Unsurprisingly, investors were extremely interested to ask Wang Shi about his appearance on the show. “It came up in every meeting,” said one source. But Vanke’s story is compelling precisely because it is not a builder of ghost cities — and that message clearly struck a chord.
“Vanke has a fantastic track record,” said one banker. “It’s a mom-and-pop developer that is building the kinds of mass-market properties that the Chinese government wants.”
Vanke is rated BBB+ by Standard & Poor’s and Fitch, and Baa2 by Moody’s. Other high-grade borrowers in the sector include China Overseas Land, China Resources Land and Yuexiu Property, which many investors consider to be a marginally investment-grade credit.
The five-year deal priced at 195bp over US Treasuries, which bankers on the deal claimed was “a great result”. A new bond from China Overseas Land would likely have printed at 200bp over US Treasuries, they said.
Comparing the two credits is not straightforward, however. China Overseas Land is 53%-owned by the government and issues its bonds directly, whereas Vanke has only a minority government stake and is issuing through a keepwell guarantee, which means the issue’s ratings are a notch lower than the company rating at BBB/Baa3/BBB+. The issuing entity is called Bestgain Real Estate.
Market conditions cooperated during the marketing of the deal, which included meetings in Hong Kong, Singapore and London that kicked off last Monday. The high-yield market started the week half a point down, but things had picked up by Wednesday after good unemployment numbers in the US and an all-time high on the Dow.
That momentum clearly carried into the order book, allowing the leads to allocate 73% of the deal to fund managers, with 14% to corporates and banks, 6% to private banks, 4% to insurers and 3% to official institutions. By region, 82% of the investors were based in Asia and the rest in Europe. There were 275 accounts in the book.
The bonds carry a coupon of 2.625% and were re-offered at 99.397 to yield 2.755%. In secondary trading on Friday the bonds traded in to 186bp over Treasuries.
HSBC was the sole global coordinator and joint bookrunner with Deutsche Bank.
China Vanke has projects in more than 50 cities in the Pearl River Delta, the Yangtze River Delta and the Bohai Bay Rim, as well as central and western China.
