With investors still holding on to plenty of cash and borrowers willing to pay up, the Asian dollar bond market continues to be active. Hong Kong property company Wharf Holdings last night priced a $600 million five-year bond, which drew roaring demand from investors.
The deal was marketed in the area of Treasuries plus 415bp and priced at Treasuries plus 400bp, 15bp inside of the initial guidance. The deal size was expected to be $300 million to $400 million but was upsized to $600 million, after attracting demand of $4.25 billion from 296 accounts. Asian investors were allocated 73% and the rest went to European investors.
HSBC, J.P. Morgan and Standard Chartered were joint bookrunners.
The issue is expected to be rated A- by Fitch but there were some market participants who felt that it should have a different rating. “It depends on how you look at the credit. We had different feedback from investors,” said one person familiar with the deal. “The company has an unsolicited A- rating from Fitch, but there are investors that look at it as a BBB+ credit.”
According to a Hong Kong-based trader, the deal looked “quite cheap” compared to the Wharf Holdings 2017s and the Kerry Properties 2016s, which were both quoted at Treasuries plus 380bp/360bp, though both sets of bonds are illiquid. “We think it should trade well in secondary, as the size looks quite manageable and the order book is already about $1 billion,” said the trader on Monday afternoon. At that time however, the market was expecting a deal size of about $300 million.
Wharf Holdings is a subsidiary of Wheelock and Company. The company focuses on property and infrastructure in Hong Kong and mainland China, and its prime real estate in Hong Kong includes Harbour City and Times Square. These two assets alone contribute 64% of its operating profit. It also owns the Marco Polo chain of hotels in China and it is expanding its investment properties in the mainland.
Around April last year, it was planning a dollar bond — mandated to UBS — but no deal print materialised. It subsequently came to the market with an $800 million convertible bond through Goldman Sachs, but given the hefty conversion premium and low likelihood of conversion to equity, many felt the deal was similar to a bond.
Its latest deal offered Wharf the chance to lock in funding while rates were low. The coupon was fixed at 4.625% and the notes reoffered at 99.515 to yield 4.735%. The bonds mature on February 8, 2017. By investor type, fund managers were allocated 51%, private banks 20%, banks 18%, insurers 6%, corporates and others 5%.
The pipeline for investment-grade deals continues to grow, with a number of banks eyeing the dollar market. Busan Bank, a domestic commercial bank in Korea that lends mainly to small and medium-sized enterprises, held investor meetings in Singapore on Monday. The meetings move to Hong Kong on Tuesday and London on Wednesday.
Busan Bank plans to issue a $300 million to $400 million senior bond, with a tenor of five or five-and-a-half years. Citi, Credit Agricole and UBS are joint bookrunners. Busan Bank is rated A2 by Moody’s and BBB+ by Fitch. Elsewhere Hong Kong lender Dah Sing Bank and Korean lender Hana Bank (which last Friday won approval to buy Korea Exchange Bank from Lone Star) were also said to have met with investors.
However, bankers will be watching to see if the primary market for Asian high-yield dollar bonds — which pays higher fees — will reopen after a break of six months. “Most of the fees are earned in high-yield,” said one debt banker. “While the investment grade market is very busy, you need both sides of the business to be doing well — both high-yield and investment grade — to make money,” he added.
Following shortly after Moody’s upgraded Indonesia from Ba1 to Baa3, Indonesian power company Cikarang Listrindo is poised to test the high-yield market. It plans to issue a seven-year dollar bond that is callable after the fourth year. Investor meetings to Asia, London and the US will start on February 1.
The company also started a tender offer and consent solicitation for its outstanding $300 million 9.25% senior notes due 2015. Barclays Capital and Credit Suisse are joint bookrunners and dealer managers for its tender offer. Cikarang provides energy to industrial and residential estates in Indonesia and it is rated Ba2 by Moody’s and BB- by Standard & Poor’s.
