Yingde Gases sold a capped $250 million 5.5-year bond on Thursday, defying global market fears and re-pricing its overall funding curve.
The 144A/Reg S-registered offering, which is callable after 3.5 years, is the first high-yield note to hit debt markets in three weeks. Asia’s fixed-income market came to a standstill in the past few weeks due to the increase in geopolitical risks stemming from the Russia-Ukraine crisis and the conflict in Iraq.
Barclays reported this month that outflows from the US high-yield space had reached $16.9 billion the week of August 4 and warned that a continuation of outflows could affect Asia.
In spite of such fears, Yingde braved market conditions and priced its offering, which was 10-times oversubscribed — the order book was more than $2.5 billion — from more than 160 accounts, a source familiar with the matter said.
“Given the recent market weakness and the lack of supply, having the confidence to go out with a trade and moving the pricing very substantially is a real testament that there is still appetite for high-yield credit,” the source told FinanceAsia. “Investors’ pockets are still deep and they have the capacity to put money to work.”
Yingde launched the deal at an initial price guidance of high 7% area, and ended up pricing at a yield of 7.4%, sources close to the deal said. The bond has a coupon of 7.25%.
The company’s existing 3.5-year notes maturing in 2018 were trading at about 7% prior to announcement of the deal and were used as comparables. After taking into account the extension in maturity of two years, fair value for its new offering would be about 7.625%, indicating that it priced inside its existing curve.
The bond has optional redemption periods after February 28 in 2018 and 2019 at cash prices of 103.625 and 101.813 respectively, according to a term sheet seen by FinanceAsia.
Chinese real estate company Jingrui Holdings was the last high-yield borrower to tap global markets. On August 1, it raised a $150 million five-year note at a yield of 14%, according to Dealogic data.
Clear-cut use
The clear usage of proceeds was also a factor that contributed to the appeal of Yingde’s latest offering. The company specified in a term sheet that it will use 40% of the proceeds to refinance onshore debt, another 40% for capital expenditure and 20% for general corporate purposes.
Asian investors subscribed to 60% of the notes, and the remaining 40% was split equally between US and European investors, sources familiar with the matter said. Fund and asset managers purchased 91% of the paper, followed by private banks with 8%, and corporates, financial institutions and others 1%.
In the secondary market, Yingde’s latest bond is trading above par at a cash price of about 100.5 to 100.75 shortly after it priced, according to Bloomberg data. The positive outcome of the latest offering also caused its existing note expiring in 2018 to trade up from 103.625 on Thursday to 105 on Friday.
Yingde’s Ebitda grew 21% year-on-year on the back of a 16% year-on-year growth in revenue and a reduction in selling, general and administrative expenses, according to Moody’s in a recent report.
The rating agency expects Yingde to maintain a solid performance over the next one to two years on the back of a production ramp up at its newly commissioned facilities.
Yingde is one of the largest players in the independent onsite industrial gas market in China. The company reported revenue of Rmb6.87 billion ($1.12 billion) in 2013.
It had 57 production facilities in operation and another 31 under development at the end of 2013. Onsite gas production accounted for about 80% to 90% of the company’s revenues, with the rest coming from merchant sales.
China accounted for 64% of total high-yield issuance in Asia ex-Japan, which stood at $18.5 billion as of August 22, according to Dealogic data. This is followed by India and Singapore with a market share of 16.2% and 5.5% respectively.
Sector-wise, real estate companies accounted for more than 50% of total high-yield issuance in Asia ex-Japan, followed by metal and steel with 16% as of August 22, the data provider added.
Deutsche Bank and HSBC were the joint bookrunners of Yingde’s BB/BB-/Ba3 rated transaction.
