Launched at $375 million, the leads announced initial guidance at midday on Thursday (November 2) in the 9.125% region, usually translating to a plus or minus of 0.125%. However as the Reg S/144a seven-year non-call four deal built up momentum, particularly from US accounts, the leads tightened guidance to 9% to 9.125%, with a revised size of $375 million to $400 million.
Roadshows were held in Hong Kong on Wednesday, before they moved on to London on Thursday and wrapped up in New York on Friday. Heading into Friday nightÆs pricing, the leads had already built a firm $200 million order book at the 9% level. When the bookÆs finally closed near midnight in Asia, it had generated $2.2 billion in orders from upwards of 200 accounts û an oversubscription ratio of five-and-a-half times.
Final pricing on the BB/Ba2 rated notes came at par with a 9% coupon. This equates to a spread of 432bp over US Treasuries. In terms of allocations, the deal was split geographically 42% into Asia, 29% into the US and 29% into Europe.
The leads looked to complete the deal on the back of weaker US non-farm data on Friday in hopes that it would promote a rally in US Treasuries. However OctoberÆs employment numbers were surprisingly upbeat. US unemployment fell to 4.4% for October, a five-year low, while consensus had the rate holding steady at 4.6%. The bond market viewed the news as a sign that the Federal Reserve may look to trim interest rates earlier than expected and Treasuries sold off by around 10bp.
A further hiccup for the leads was a Thursday release from MoodyÆs saying that it had revised its outlook on Hopson Development Holdings to negative from stable due to its aggressive land acquisition and slower-than-expected cash generation. Hopson is one of the leading property development companies in mainland China, and has principal operations in Guangzhou. The company currently has a land bank consisting of more than 13 million square meters in gross floor space, in four major cities: Guangzhou, Tianjin, Beijing and Shanghai.
The downward revision saw Hopson and other Chinese property companies, such as Agile, trade slightly wider heading into the weekend.
Indeed, both Hopson and Agile were the primary comparables that bankers were citing for Greentown. Hopson has a $300 million seven-year non-call four deal that priced in November 2005, which was quoted at 8.25%. While Ba3/BB rated Agile has a similar $400 million seven-year non-call four Reg S/144a deal in the market. That deal, also a debut, was priced in mid-September at par with a coupon of 9%. On Friday Agile was quoted at 9.125%.
"Greentown's rating has factored in its strong operating and competitive positions including its market leadership in Zhejiang province, a well-established brand name, quality products and diversified existing land bank which covers 17 cities," said MoodyÆs in its recent ratings report.
The report went on to say however, that tempering these operational strengths, Greentown has a relatively aggressive balance sheet structure with projected adjusted debt/capitalization for 2006 at around 65%, which is high when compared with other Ba-rated property developers in China. Moody's understands that the company will continue to de-leverage. Furthermore, the rating is based on expectations that the company can successfully achieve its sales and generate sufficient cash flow to cover debt repayments thereby lowering the ratio to 45%-50% by the end of 2008.
With the completion of its bond deal, Greentown's secured and subsidiary debt to total debt and total assets ratios will be approximately 48% and 20%, respectively.
With regard to its financial metrics, Moody's expects to see OCF/interest at approximately 5-6-times and operating cash flow/adjusted debt at approximately 25% to 30%, both levels appropriate for a stable outlook.
Greentown is one the MainlandÆs major property developers with a primary focus on Hangzhou and Zhejiang provinces. It has a land bank of nine million square feet of attributable gross floor area in 17 Chinese cities.
The property developer raised HK$2.67 billion ($344 million) when it completed its debut listing on the Hong Kong Stock Exchange on July 7.
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