Jardine Strategic, the holding company of the entire Jardine group, is believed to have mandated a total of four joint bookrunners to lead a debut $300 million 10-year euro-144a bond. It is said that the two ratings advisors ¶ Goldman Sachs and HSBC ¶ have been joined by JPMorgan and UBS Warburg.
The presence of none of the banks is much of a surprise. HSBC is the company's longest standing relationship bank, famously standing by it in the early 1980's when a world-recording breaking bid for the Exchange Square property development and a floating rate debt load met a collapsing property market and interest rate volatility head on.
Since that period, the group has had a very public aversion to debt, only re-emerging with a first public bond offering earlier this year when Hongkong Land raised $600 million from a 10 year Eurobond. This deal was also led by HSBC alongside JPMorgan and Goldman.
JPMorgan has since solidified its relationship with the group by negotiating to consolidate all of its Hong Kong based operations in one place and become an anchor tenant of Jardine s 11 Chater Road development - the site of the old Swire building in the Central business district.
Goldman, meanwhile, has a very personal relationship with group since its current Asian vice chairman and former head of DCM, Carlos Cordeiro used to work alongside Hongkong Land CEO Nick Sallnow-Smith at Manufacturers Hanover. So too, UBS Warburg has forged a personal relationship with the group following the appointment of strategic director Brian Keelan this July. Keelan, who has taken charge of long-term financing at the group level, had previously been a 12-year UBSW corporate finance veteran.
The appointment of so many relationship banks, however, means that fees on the potential deal are likely to be very low, with each bank set to pick up only about $300,000 based on a cut of about 40bp.
Investors provisionally canvassed by the lead banks say that proceeds will be used to re-pay short-term debt and term out the group s liability profile. But it is also said that Jardines, in its notoriously secretive way, is refusing to specify exactly why it wants to tap the bond markets.
According to its Interim Financials, on a consolidated basis the group has $395 million in short-term debt and $1.368 billion in long-term debt. In terms of Jardine Strategic's debt ratios, the ratings agencies are likely to look less at the overall debt load on a consolidated basis, than the ability of the parent to service its own debt on the basis of dividend payments from its subsidiaries.
In this respect, Jardine Strategic's ratios look reasonably healthy since it received $110 million in dividends during 2000 and $118 million during the first six months of 2001.
For observers, the next key test will be the rating assigned to the group. In many instances in Europe and the US, a holding company is rated one notch lower than the operating subsidiaries, since holding company debt is often structurally subordinate and the actual operating companies have a closer claim on the underlying assets.
The most obvious benchmark is Hongkong Land, whose A3/A- rating is sovereign rated by Moody s, but one notch lower in the case of Standard & Poor's. The property group made a highly impressive bond debut in late April, silencing critics with a deal that priced inside of Hong Kong s de facto corporate benchmark Hutchison Whampoa, which has a slightly higher A3/A rating.
Starting roadshows with a spread 10bp to 15bp outside of Hutch, Hongkong Land ended them 4bp through, pricing its deal at 195bp over Treasuries on an issue price of 99.054 and coupon of 7%. Even though launch pricing was deemed tight, the deal has performed well in the aftermarket, currently trading at a bid/offer level of 161bp/158bp over. At these levels, it is some 60bp inside Hutch, whose February 2011 issue closed Asian trading yesterday (Thursday) at a bid/offer level of 224bp/210bp.
Observers have attributed Hongkong Land's success firstly, to the credit's rarity value for its home audience and particularly private banking clients and secondly, to being positioned as a utility style credit with stable cash flows from the flagship property portfolio. Equally, many believe that the new deal for the parent will be equally well received when it begins roadshows in roughly two weeks, although some say that attempting to price inside Hongkong Land will be a major challenge, especially if the group does secure a lower rating.
Over the past few days, however, there has been a renewed flight to quality, which has seen quasi-sovereign benchmarks MTR Corp and KCRC trade through the 100bp mark for the first time this year.
Jardine Strategic is the holding company of the Jardine group. The infamous cross-shareholding structure was established in 1986 in an attempt to make the group as invulnerable to a take-over as possible. On creation, Jardine Strategic got 26% of Jardine Matheson and Jardine Matheson got 49% of Jardine Strategic. Currently, the former owns 50% of the latter and the latter 74% of the former. Since 2000, a group of minority shareholders led by Brandes Investment Partners has been attempting to get the cross-shareholding unwound to little avail.
Aside from its ownership of Hongkong Land, the Jardine group also controls the Mandarin Oriental hotel group, Dairy Farm, Jardine Motors, insurance company Jardine Lloyd Thompson and Cycle & Carriage, which in turn owns a 61% stake in Astra International.
