Chinese property developer Powerlong Real Estate Holdings returned to the international bond markets for the first time since 2013 on Thursday with a new issue to re-finance an earlier deal.
The B3/B- rated $200 million transaction represented the third offering from a Chinese property company in as many weeks. However, the three-year Reg S deal did not attract the same high level of demand as its predecessors, with the order book closing just above $800 million, according to sources close to the deal.
Recent deals by Future Land and Beijing Properties both achieved order books in excess of $2 billion but the drop-off in demand for Powerlong is not that surprising given that it priced through its own curve.
Having set out with initial guidance around the 8.375% level, the syndicate ended up tightening pricing by three-eighths of a point. Final pricing was fixed at 99.017% on a coupon of 7.625% to yield 8%.
The nearest comparable is Powerlong's outstanding $250 million 11.25% January 2018 deal. According to one broker this was trading on a bid/offer price of 105.7%/106.25% on Thursday, equating to a yield-to-maturity of 8.3%.
The deal is callable in January 2016 and proceeds from the new transaction are being used to re-pay it so the company can reduce its cost of debt. Both deals are rated one notch below the company's stand-alone rating because of their structural subordination.
By contrast, unrated Beijing Properties last week priced a $300 million three-year deal in the name of Profit Fast on a coupon of 5.5% and yield of 5.75%. The deal attracted an order book of $2.4 billion and at Asia's close on Thursday had traded up to 100.5%/101% to yield 5.32%/5.13%.
Likewise, a deal two weeks ago for B1/B+ rated Future Land also attracted an order book in the range of $2.48 billion. This two-year transaction was priced with a coupon of 6.25%.
On Thursday it was trading at 99.38%/100.13% to yield 6.59%/6.18%.
Shanshui cements better tone
Despite its more subdued order book, Powerlong's deal hit the market on a good day for high-yield Chinese property names, with higher rated credits tightening by about 1.25 to 1.75 points. The mood has become progressively more upbeat as a shareholder stand-off between Tianrui International and Taiwan's Asia Cement concerning the ownership of Shanshui Cement shows signs of easing.
The cement maker's $500 million 2020 bonds rose by up to 11 points on Wednesday after the two shareholders both said they would make funds available to redeem the company's outstanding international bonds. On November 12, the company announced it did not have the funds to re-pay Rmb2 billion ($313 million) in onshore bonds and was filing a winding up petition.
This triggered a cross-default on its offshore bonds, which fell to the mid-50's at their lowest point. By Wednesday they were back trading in the early 80's again, although brokers reported some profit taking on Thursday.
Credit metrics
Where Powerlong is concerned, both agencies cited the execution risk surrounding the company's expansion into tier 1 cities in their rating assessments. However, Moody's and Standard & Poor's also added that the strategy appears to be paying off, with sales rising 56% year-on-year during the first 10 months of 2015.
S&P commented that the company's portfolio is now well balanced between commercial and residential developments. It also said it expects leverage to improve as sales rise.
Moody's added that it expects the company's Ebit to interest coverage ratio to range around 2 to 2.2 times during 2015. But it noted that this could improve if the company is able to reduce its borrowing costs.
Joint global co-ordinators were Guotai Junan, Bank of America Merrill Lynch and Credit Suisse.
