Sole underwriter ABN AMRO has a priced a debut $125 million five-year high-yield bond deal for Hong Kong-listed Ocean Grand Holdings. From the beginning, the BB- (S&P) deal was considered a difficult sell given the recent volatility in the high-yield market and a spate of pulled deals.
Indeed, after witnessing a slow pick up in demand, the lead ended up having to price above its initial range between 9% and 9.25%. Final pricing came in at 99.515% on a semi-annual coupon of 9.25% to yield 9.375%, equivalent to 497.5bp over US Treasuries. Lifting the yield enabled the order book to close almost two times oversubscribed.
In total 31 accounts were allocated paper, with Singapore investors buying up 37%, Europe 35%, Hong Kong 17% and off-shore US accounts 11%. In terms of investor type, fund managers and insurers bought 43% of the total book, with retail investors accounting for 34% and banks the remaining 23%.
In a market where institutional investors are more inclined to buy high-yield paper it is surprising to see such a high representation from the retail space. However, Ocean Grand is seen as a relatively straightforward credit sell, with an uncomplicated business model that is attractive to sophisticated retail investors.
The most obvious pricing comparable is fellow China mid cap Asia Aluminium, which has a one-notch higher rating of Ba3/BB. Last December, the group issued a slightly longer seven-year bond, which was trading yesterday at 8.65%.
Specialists say the need for a premium to Asia Aluminium can be attributed to residual concerns over the precarious market conditions and Ocean Grand's weaker market position in the highly competitive and fragmented aluminum extrusion business.
During first day trading yesterday, the deal performed relatively well, trading up to 100.25% to 100.75% by Asia's close. Ocean Grand will use proceeds to refinance $100 million-equivalent of existing debt, with the remainder going towards capital expenditure. The company is looking to double its aluminum output capacity to 95,000 metric tons a year, which is estimated to cost $80 million.
