High-yield Bond

IFR Asia Awards 2013
3 min read

Country Garden Holdings began a wave of debt sales by Chinese property developers in 2013, launching a 10-year bond when the year was barely days old.

However, beating the usual array of investment-grade corporations and sovereign issuers to the market line was not Country Garden’s only trendsetting move. The developer also turned heads with a rare 10-year maturity, rather than the habitual five-year format that other high-yield borrowers favoured, as well as the first 144A/Reg S bond from a Chinese property high-yield credit since March 2011.

The January 3 debt sale paved the way for other Chinese property developers to issue US dollar bonds and for high-yield credits to consider longer tenors.

Its timing, however, was no accident, coming two days after US legislators sealed an deal to avert a sudden end to tax cuts, restoring confidence in the US economy.

The US$750m bond priced at par to yield 7.50%, 75bp tighter than initial price talk. The overwhelming response underlined the benefits of the global format and the longer tenor, with investors willing to pay for the scarcity value. Before launch, some analysts had pegged the bond’s fair value at 8.8%.

The price rose to 102.0/102.5 immediately in the secondary market and demand for the bond continued until June. That was when prices throughout the region slumped on fears the US would soon begin scaling back its bond purchases. The tapering concerns played havoc on longer duration credits.

Investors took to this first 10-year bond from a Chinese property company since Soho China’s paper in November 2012, with a similar maturity, largely on the strength of Country Garden’s credit story.

Country Garden had the highest year-on-year growth rate among all Chinese developers that Moody’s tracked, the rating agency said in an October 29 note, adding that the developer had more than doubled to Rmb64.7bn its contracted sales in the first nine months of 2013, exceeding its sales target of Rmb62bn for the full year.

“Country Garden demonstrated to everybody that there was a market that could take size and duration, and that deals can perform afterwards” said Julian Trott, head of DCM syndicate, Asia (ex-Japan) at Goldman Sachs.

The bond offering, for which Goldman Sachs was joint global co-ordinator with JP Morgan, drew a staggering US$18.4bn of orders.

Asian investors bought 48% of the bonds, European investors 21% and US investors 31%. Fund managers bought 66% of the offering, while 14% went to private banks, 10% to hedge funds, 7% to banks, 1% to insurers and 2% to others.

BOC International and ICBC International were joint bookrunners.

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