Hong Kong real estate developer New World Development returned to the international bond markets on Friday, raising $950 million through the sale of a seven-year unrated note.
The deal attracted a very strong order book that had topped $3.5 billion by the time final price guidance was released towards the end of the Asian trading day. Such strong momentum was not that surprising given the underlying positive tone of secondary markets and the rarity value attached to Hong Kong property names.
The company initially went out with price guidance at 270bp over Treasuries, before tightening it to five basis points either side of 250bp over. Final pricing of the blue chip company, controlled by billionaire Cheng Yu-tung, was fixed at 245bp over.
Bankers familiar with the deal said there was only a very marginal new issue premium as New World Development is a household name within the investment community.
The company’s two outstanding dollar bonds provided the main comparables and particularly the group’s 5.25% February 2021 bond. This was trading on a G-spread of 238bp and T-spread of 244bp on Friday, which means the group has offered 7bp of upside for a 19-month extension down the curve.
“I’d say there was little to virtually no concession for the new issue,” said one banker familiar with the sale. “The company wanted to extend their yield curve to 2022 after offering a seven-year deal last year.”
The banker added that allocations were fairly balanced between private banking clients, bank treasuries and institutional funds.
One fixed income fund manager told FinanceAsia that the New World Development’s outstanding bonds are tightly held and extremely illiquid, as bond investors in Asia tend to hold their paper until maturity.
“The New World Development bonds are usually bought up by conservative investors seeking stable returns,” the fund manager explained.
As of June this year, New Wold Development was ranked the second most indebted property firm in Hong Kong (measured by net debt to shareholder funds), with a ratio of 29.9%, according to according to a Barclays’ research report. Kerry Properties took the first place in the poll, while Henderson Land was ranked in third spot.
According to the group’s net roadshow net debt to Ebitda has risen from 2.7 times in 2014 to 3.2 times in 2015. Net debt to net capitalization, on the other hand, has fallen from 21.5% in 2014 to 19.4% in 2015.
The group had an asset base of $51.3 billion at the end of June and a portfolio with a gross floor area of 8.8 million square feet at the same point.
It also said total debt at end June was split 29% fixed rated bonds, 21% secured bank loans and the remainder unsecured bank loans, of which 27% matures in less than one year, 14.7% in one to two years, 44.4% in two to five years and the remaining 13.9% in more than seven years.
Last year, the company also raised $1.72 billion through a rights offering to finance the privatization of New World China Land, its majority-owned listed unit for Chinese property development.
However, investors in New World China voted down the “take private” proposal, as some of the minority investors sought higher compensation for their share holdings.
Henry Cheng Kar-shun, chairman of both firms and the elder son of Cheng Yu-tung, said in June last year that he was surprised by the failed takeover. Last week he also told reporters he expects Hong Kong property prices to slide 5% to 10% over the next six months, but he does not believe prices will be affected by looming interest rate rises in the US.
