Hong Kong-listed developer Sun Hung Kai Properties on Thursday night priced a $275 million bond to add to its existing $500 million bonds maturing 2016. Citi was the sole bookrunner.
HSBC has historically been the house banker for Sun Hung Kai Properties (although Standard Chartered arranged the $500 million five-year bond that priced in October last year on a sole basis). The last time Citi had arranged a bond for Sun Hung Kai was back in 2007, when it priced a $300 million 10-year bond jointly with HSBC.
Citi announced the tap for Sun Hung Kai Properties at 3pm on Thursday — late by usual standards — and went out with an initial price guidance of five-year Treasuries plus 270bp to 275bp. The bonds priced at the tight end of guidance.
“We went out in shaky markets,” said one person familiar with the deal. “Equities were not rallying and the Hang Seng was down. Also Hutch’s bonds had traded wider so our sales people weren’t sure how receptive investors would be to another Hong Kong name but we saw an opportunity to get the deal done.”
“In the end we managed to get an $800 million orderbook and upsized the deal from $200 million to $275 million,” he added.
According to a Hong Kong-based trader, Sun Hung Kai’s bonds trade at a wide bid-offer spread as they are not very liquid. “The bonds were at Treasuries plus 250bp/240bp before the deal was announced, and they then widened to Treasuries plus 260bp/250bp,” he said on Thursday afternoon when the deal was in the market. “But I think they offer good value compared to the recent new issue — the Hutch 2017s,” he added.
Sun Hung Kai Properties priced at Treasuries plus 270bp, which is 5bp inside the Treasuries plus 275bp spread at which Hutchison Whampoa priced its $500 million five-year bonds. Sun Hung Kai’s bonds are expected to be rated A1 by Moody’s and A+ by S&P, two notches above Hutchison Whampoa, which is rated A3 by Moody’s and A- by Standard & Poor’s, so most would expect its bond to price inside of Hutch.
However, one person familiar with the deal pointed out that Sun Hung Kai Properties is operating in a tough sector, as opposed to Hutchison Whampoa, which is a conglomerate, so it actually achieved tight pricing by printing inside of Hutch.
There was also speculation on the street that the deal was underwritten by Citi. “We think it was an underwritten deal. Three of four other banks were asked to participate too. We were told that Citi was in at Treasuries plus 275bp, so are you in or not?” said one rival banker.
However, a source close to Citi flatly denied that the bonds were underwritten. “I can assure you 100% it was not an underwritten deal. We told Sun Hung Kai a level we thought we could get the deal done at, and honestly nobody would want to mess around with them by not delivering. But it was not underwritten.”
The tap brings the total issue size up to $775 million. A total of 70 accounts participated. Funds were allocated 45%, banks 25%, insurers 14%, private banks 8% and “others” 8%. Hong Kong investors were allocated 67%, the rest of Asia 24% and European investors 9%.
The tap price of the bonds was 99.839 and the reoffer yield was 3.536%.
Elsewhere, another Hong Kong Stock Exchange-listed property developer, Shui On Land, chose to tap the Singapore dollar bond market, taking advantage of the arbitrage opportunity there.
The Shanghai-based developer, which was founded by Vincent Lo, priced a S$225 million ($174 million) three-year senior bond at a coupon of 8% on Thursday night.
The 8% coupon was juicy for Singapore dollar investors but offered the issuer far cheaper pricing than the dollar market. According to one person familiar with the deal, the bonds swap out to 8.5% in US dollar terms which is 75bp inside where Shui On Land’s synthetic renminbi bond trades after swapping into US dollars. It was also a whopping 500bp inside the 13.75% yield that the Country Garden 2015s trade at.
Country Garden, rated Ba3 by Moody’s and BB- by Standard & Poor’s, is one of the stronger China property names. Shui On Land is unrated. The bonds mature on January 26, 2015.
Standard Chartered was sole global coordinator and bookrunner. BNP Paribas, Deutsche Bank and UBS were also joint bookrunners.
