LDK Solar’s Rmb1.2 billion ($182 million) synthetic offshore renminbi bond has struggled in secondary market trading this week. This is a less than auspicious start for the first Chinese company outside the property sector to issue a renminbi-denominated US dollar-settled bond.
LDK Solar is also the first solar power company in Asia to issue a high-yield bond. The three-year deal was priced on Friday night (Hong Kong time) amid weak credit markets. Citi and Morgan Stanley were joint bookrunners.
The LDK Solar bonds, which were issued at par, initially fell three points to 97 on Monday and have touched a low of 96. According to one of the leads, they had recovered to 98/98.25 by yesterday morning.
The deal has drawn fierce criticism from rivals who suggest that the leads did not do enough ground work to find the right price for the deal prior to launch. LDK Solar, a Chinese solar wafer maker, is unrated and this is its debut bond.
“The bonds priced wide of initial whispers. And investors got their full fill of orders so the bonds didn’t have a chance of performing in the secondary [market],” said one rival banker.
The deal raised less than the Rmb1.5 billion that was expected, although at the final size of Rmb1.2 billion, it was more than one time covered. According to a banker on the deal, a yield of 9% was talked about during initial price discussions with investors, and the final guidance was in the 10% area. The bonds priced within that guidance, at a yield of 10%, he said.
This is disputed by others and arguably there was a fair bit of noise surrounding the deal. One rival banker said that the price whisper was 7.5% to 8% and that the initial price guidance was 9%, while another said that the price whisper was 8.5% to 9%. A price whisper is usually given to investors verbally, while an initial price guidance is sent to investors via email.
The bonds traded at a yield of about 11% yesterday morning.
US-listed LDK Solar has a market capitalisation of $1.9 billion and the company has a relatively short operating history. The banker on the deal said that most investors do not fully comprehend LDK Solar's credit yet and, hence, the bonds are trading cheaper than they rightfully should.
He argued that LDK Solar’s bonds look cheap compared to German-headquartered SolarWorld’s eurobond maturing in 2017, which traded at a yield of 6.2% yesterday. SolarWorld, which develops solar technologies, is also unrated.
Away from LDK Solar, other recent synthetic offshore renminbi bonds have also traded down in the secondary market. For instance, yesterday morning China SCE Property's bonds due 2016 were quoted at a dismal cash price of 94, while Evergrande Real Estate's bonds were at 97.25/97.75.
