China Overseas Land International (COLI) took advantage of a respite in the ongoing market turmoil to execute the first euro-denominated bond issue by a Chinese property company on Tuesday.
The credit market's muted reaction to Greece's "no vote" combined with strong lead orders from syndicate bank affiliates gave the Baa1/BBB+/BBB+ rated credit confidence to approach the market with a Reg S deal.
Having initially marketed a four-year transaction at 170bp over mid-swaps, the leads tightened indicative pricing to 155bp over mid-swaps.
Final pricing of an €600 million July 2019 offering was fixed at 99.587 on a coupon of 1.75% to yield 1.858%. This represented a spread of 200.58bp over Bunds, or 155bp over mid-swaps.
At this level, the group priced wide of one notch higher rated Bao Steel but through Beijing Enterprises, which also has a one notch higher rating.
Baa1/A-/A- rated Bao Steel has an €500 million 1.625% February 2018 bond outstanding, one year shorter than COLI. This was trading Tuesday on a bid/offer price of 100.06/101.46 to yield 1.058% or 128bp over mid-swaps.
At launch in mid-February, the three-year deal was priced at 155bp over mid-swaps, the same level as COLI's new four-year transaction. Since launch it has tightened 27bp in line with the overall performance of the Chinese market.
A3/BBB+ rated Beijing Enterprises has an €500 million 1.435% May 2020 deal outstanding, one year longer than COLI. This was trading on Tuesday at 99.79/99.23 to yield 1.602% or 157.16bp over mid-swaps.
COLI's nearest dollar-denominated comparable is its $800 million 4.25% May 2019 bond, which was bid yesterday at 102.72% to yield 3.129%, or 191.59bp over Treasuries.
The group picked a relatively good day to execute its new trade with few deals to contend with and stable though slightly softer spreads.
On Monday, the Asia ex-Japan iTraxx Index widened 2.4bp, while many investment grade Asian credits traded in 4bp to 5bp on the back of strong gains in US Treasuries. On Tuesday, the market was a bit softer with the iTraxx out 3bp to 116, while investment grade credits widened 3bp to 10bp led by China and Malaysia.
Sources close to the new deal said COLI decided to move into euros to diversity its funding sources and build up a new investor base. Last year, it issued three dollar-denominated bonds, following one issue in 2013 and two bonds plus a syndicated loan in 2012.
According to the group's investor presentation, it currently has $12.9 billion of debt outstanding, of which 22% matures in less than one year; 42% between one and five years; 24% 5-10 years and the remaining 10% longer beyond 10-years.
In the presentation, the group also said that total debt to Ebitda stood at 2.6 times at the end of 2014 compared to 2.7 times in 2010, while its adjusted Ebitda to interest coverage ratio was 9.9 times compared to 13.8 times in 2010.
Net gearing stands at 32.5%, one of the best ratios in the over-indebted China property sector where companies such as Guangzhou R&F Properties and Evergrande were struggling with ratios of 91.7% and 88.1%, respectively, at the end of 2014.
COLI is owned by state-owned China State Construction Engineering Corp. In March, its parent injected a further Rmb33.8 billion of assets into the group to replenish its land bank and reinforce its position as the group's premier listed property development business.
COLI was the first Chinese company to get an investment grade rating and, in its ratings release, Fitch emphasised the group's proven track record and position as one of China's leading home builders since it was set up in 1984.
Following the asset injection, COLI increased its land bank by 29.1% to 49.5 million square metres across 45 Chinese cities plus Hong Kong and Macau. In 2014, it notched up sales of HK$140.8 billion.
Joint global co-ordinators for the bond deal were Agricultural Bank of China, BNP Paribas, DBS, HSBC and ICBC. Joint bookrunners also comprised CCB Asia, Deutsche Bank and JP Morgan.
