Yuzhou Properties has raised a $300 million five-year high-yield note, the latest in a flurry of mainland real estate issues this month and possibly the last before China breaks off for Golden Week on October 1.
The deal – launched on Friday with a callable option in the third year - was priced 25bp tighter than an initial price guidance of 9%, and flat to its existing curve, according to sources. The company’s 2017s were trading at 111bp above Treasuries or a yield of 8.453%, and after adjusting for the curve, the fair value of the new bond was 8.75%.
Yuzhou’s bond received a book value of more than $2 billion from more than 160 accounts, highlighting investors’ strong appetite for high yield credit in recent weeks. The majority of the orders - 93% - came from investors based in Asia, with the remainder coming from Europe.
“The company moved into the last stable window ahead of serious discussions circling the Fed budget and Golden Week,” said a source close to the deal. “But the market has generally liked them for a long time because they have issued multiple times in the past, and it’s a prudent and well-structured company.”
Fund managers took a bulk of the Yuzhou Properties’ issuance: 77%, followed by private banks at 18%, corporate 3% and banks 2%, according to sources. Also, the notes’ first call date will be April 2017 at a premium price of 104.375, followed by April 2018 at 102.1875.
Yuzhou Properties is the fifth mainland property company to tap the high-yield markets in September, a big improvement from the previous three months, which saw zero deals, according to Dealogic data. In May, only three Chinese high-yield deals were priced, with a volume of $1.4 million.
Asia’s credit markets have been volatile since Federal Reserve chairman Ben Bernanke hinted that the central bank would reduce its vast purchases of US Treasuries in May, spelling an end to low interest rates. However, the Fed reaffirmed on September 18 that it will not do so for the time being, boosting market confidence once again.
However, US budget talks could derail market sentiment this week, note sources. The discussions hit an impasse over the weekend as lawmakers wrangled over funding for president Obama’s signature health law. Lawmakers must pass a budget before Tuesday to avoid partial shutdown of the federal government – the first time since 1996.
“The bond market is fundamentally open ahead of the non-farm payrolls on Friday,” said the source. “But the market is feeling very shaky because right now because of the uncertainty circling the US budget talks.”
Despite the uncertainty, Yuzhou Properties’ bond fared well in secondary markets, hovering around par value versus the iTraxx index, which performed poorly on Monday, widening by 8bp, according to sources.
The proceeds of Yuzhou Properties’ paper will be used for refinancing purposes and to a lesser extent, general corporate purposes.
Yuzhou joins Country Garden, China’s seventh largest property developer, which issued a $750 million seven-and-a-half year high-yield bond last week, which was also priced tightly within its existing curve.
Bank of China International, DBS, Deutsche Bank, HSBC, JPMorgan and UBS were the joint bookrunners of Yuzhou’s bond.
