Poly Real Estate, China’s second-biggest developer, has tested the waters with a $500 million debut bond, but investors’ reception to the deal proved that they remained cautious, particularly towards paper out of China. The deal attracted a muted order book of $1.5 billion.
“I think investors are rightly being very selective at present,” said one banker away from the deal. “They wanted to be compensated for the keepwell deed and macro concerns.”
Poly Real Estate was the first Chinese company to price since China Huaneng’s bond in early June. But in contrast to that deal, which lurched across the finish line thanks to support from the Chinese banks, Poly Real Estate was mostly placed with fund managers, which took up two-thirds of the deal.
The issuer was Poly Real Estate Finance and Poly Real Estate is the keepwell deed and equity interest purchase-undertaking provider. Such structures have been questioned by investors, as it does not offer as much protection as a guarantee. Poly Real Estate is an investment grade credit and its bonds are rated BBB- (Standard & Poor’s)/Baa3 (Moody’s)/BBB+ (Fitch).
The initial guidance for the five-year bond was Treasuries plus 340bp area and the bonds printed at Treasuries plus 335bp, at the final guidance. The closest comparable was the Vanke 2018s, which were quoted at Treasuries plus 290bp or a g-spread of 305bp. Poly Real Estate’s bonds offered a 30bp pick up.
“I think a 30bp new issue premium wasn’t a bad outcome considering it is a debut issuance and a leap of faith,” said a source familiar with the deal.
The bonds widened initially in secondary on Tuesday, amid a softer market, but came in slightly and were bid at reoffer.
Asian investors drove the deal, taking 81% of the allocation. The remaining 16% and 3% went to European and offshore US investors, respectively. Fund managers were allocated 67%, banks 11%, private banks 10%, insurers 8% and companies 4%.
Citic Securities and HSBC were joint global coordinators and bookrunners. Credit Suisse, Deutsche Bank, ICBC International, Royal Bank of Scotland and UBS are joint bookrunners.
The deal printed ahead of a busy calendar for US markets, with the Federal Open Market Committee due to meet on Tuesday and Wednesday in New York, and US GDP data due to be released later this week.
