Investment and finance company Sun Hung Kai & Co extended its maturity profile and locked-in a lower cost of funding with the completion of an exchange offering and new bond on Monday.
The unrated group issued a new $361.639 million five-year bond after successfully persuading investors to tender $121 million of their existing $350 million 6.375% September 2017 bonds at an exchange price of 105.375%.
The Reg S transaction is a fairly unusual one given its lack of rating and lack of comparables. However, this did not appear to deter Hong Kong-based private banking investors who accounted for the majority of the $375 million in peak demand for the new bond.
"The technicals for this deal were very good," said one banker. "The group's subsidiary, UA Finance, is a well-known brand name in Hong Kong and there has been very limited supply from the territory, particularly for bonds offering a yield of more than 4%."
As such, bankers said nearly all the paper went to Asia and of that most went to Hong Kong-based private banking accounts, although there was some demand from Singapore as well.
The new deal was priced at par with a coupon of 4.75%. Earlier in the day it had been marketed around the 4.875% level.
Bankers said the biggest challenge was a lack of comparables, which made it hard to pinpoint fair value. At their most extreme, some investors were pitching for pricing closer to 6%.
However, they added that most investors agreed fair value lay in the mid-to-high 4% range.
Outstanding deals for two unrated Hong Kong credits are trading at much tighter levels than this, although both have very different credit profiles to SHK & Co.
For example, garment group Lai Sun has a $350 million 5.7% January 2018 bond outstanding. This was trading on a mid-yield around the 4.078% level on Monday.
Stanley Ho's conglomerate, Shun Tak, also has a $400 million 5.7% March 2020 bond in the name of Joyous Glory. This was trading around the 3.9% level.
SHK & Co's existing September 2017 bond was trading around the 3.412% level.
The new deal has been issued from a recently established $2 billion GMTN programme and has a put option at 101% if the Lee & Lee Trust ceases to own at least 30% of the guarantor, SHK & Co.
The Hong Kong-listed company shares a common heritage with the more famous property group of the same name, but is no longer related to it.
It is also in the process of transforming its underlying business after divesting its wealth management and broking arm for HK$3 billion ($386 million) last summer.
Its 2015 financials reveal pre-tax profits of HK$973.2 million, which includes a HK$191.1 million loss from its group management segment. Of the pre-tax total, principal investments accounted for HK$469 million and consumer finance (through UA) for HK$609.5 million.
Principal investments include stakes in Qingdao Bank, Dianrong and WuXi PharmaTech.
The consumer finance arm saw pre-tax profits more than halve from HK$1.407 billion in 2014 due to a big spike in charge-offs in China because of mounting bad debts. This ratio jumped from 8% to 24.2% over the course of the year, although the company believes it peaked in the third quarter.
Total assets stand at HK$32 billion and debt at HK$9.895 billion, resulting in a debt to assets ratio of 0.309 times.
Joint global co-ordinators for the bond issue were: UBS (lead left), AMTD and JP Morgan. Standard Chartered was a joint bookrunner, with SHK Financial and China Everbright Securities Hong Kong as co-managers.
The composition of the bond syndicate reflects a number of inter-linked relationships.
AMTD is a new player in the market, but has close ties with UBS given that its chairman, Calvin Choi previously worked in the Swiss bank's investment banking division. It also recently hired William Fung from UBS's debt syndicate desk.
China Everbright also has ties to the group following its acquisition of the 70% stake in SHK Financial last June.
