Hong Kong Equity Issue: Chow Tai Fook Jewellery Group’s HK$8.8bn convertible bond
Opening the door
A well-timed HK$8.8bn (US$1.1bn) convertible bond sale of Chow Tai Fook Jewellery Group opened a fundraising channel for another unit under conglomerate Chow Tai Fook group when its flagship company was under pressure.
The Hong Kong-listed jewellery retailer took the market by surprise on June 16 by launching a five-year put-three CB of HK$7.85bn. Investors were not expecting a deal from the company as it is controlled by Hong Kong billionaire Henry Cheng’s family, whose empire includes embattled property developer New World Development, which was at the time urgently trying to seal a crucial refinancing.
Despite that backdrop, Chow Tai Fook Jewellery decided to bring the deal to the market, riding on a strong rally in gold prices and positive sentiment towards the jewellery sector, as well as a lower Hong Kong dollar base rate.
To ensure no leakage of information, sole global coordinator and sole bookrunner UBS did not conduct wall-crossing for the transaction.
The deal was launched at a coupon of 0%–0.5%, a yield to put/maturity of 0.5%–1% and a conversion premium of 35%–45% to the reference share price, which was the price of a concurrent delta placement.
To sweeten the offer, Chow Tai Fook Jewellery conducted a concurrent repurchase of HK$1.57bn of shares in the delta placement, giving support to its share price in the aftermarket.
Chow Tai Fook Jewellery was the first Hong Kong corporate to use a concurrent buyback structure in a CB. It bought shares at HK$12.83 each, a 6.5% discount to the predeal close of HK$13.72.
The well-structured transaction drew strong demand from investors, allowing it to be upsized to HK$8.8bn. The deal was priced at a 0.375% coupon, a 0.875% yield and a premium of 35%.
The books were multiple times oversubscribed with more than 90 investors participating, including long-only funds, credit funds and hedge funds. The top 10 investors took more than half of the deal.
The offering was structured as a senior unsecured instrument with no credit enhancement, relying solely on investor confidence in Chow Tai Fook Jewellery’s fundamentals, which have remained resilient post issuance.
The CB was traded at a cash price of around 104 at the end of the review period.
Two weeks after the Chow Tai Fook Jewellery transaction, New World Development completed an HK$88bn borrowing to refinance bank debt.
In July, construction firm CTF Services, which is also under the Chow Tai Fook group, raised HK$850m from a two-year CB to restore its public float and repurchase an existing CB. In September, CTF Services raised HK$2.2bn from the sale of bonds exchangeable into shares of infrastructure asset management firm Shoucheng Holdings.
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