Property developer Jiayuan International Group has raised US$100m from a green convertible bond, the first offshore green equity-linked issue from a Chinese issuer and a potential alternative source of funds for the country's cash-strapped real estate industry.
The 3.5-year CB, which has an investor put at the end of year 2.5, was marketed and priced at a coupon of 7%, yield-to-put/maturity of 9.8% and conversion premium of 6%.
This was the highest yield for an Asian CB since Indonesian chemical tanker company Berlian Laju Tanker paid 12% for a five-year issue in 2010, but still far lower than Jiayuan would have paid for a regular bond.
The deal could open a new fundraising channel for fund-hungry property developers, which have seen investor demand hurt by lingering concerns around China Evergrande Group and its key subsidiary Hengda Real Estate, which between them have nearly US$20bn of US dollar bonds outstanding.
Evergrande's shares and bonds plunged 16.2% and 1.5–2.5 points, respectively, on Monday on local media reports that a court in Jiangsu province had ordered the freezing of a Rmb132m (US$20m) bank deposit held by one of its onshore units at the request of China Guangfa Bank's Yixing sub-branch.
The debt-laden property developer, rated B2/B+/B, said that the loan is not due until March 27 2022 and it will take legal action against the bank.
This backdrop has made it hard for Single B rated Chinese property developers like Jiayuan to raise funds from high-yield bonds this year. Deals have tended to be just US$100m–$150m in size and with short tenors. Some property companies have paid 10% or more for one-year paper, making the lower yields for convertible bonds seem attractive to issuers.
"The deal allows Jiayuan to tap a new investor base and diversify its funding sources to support future green projects," said a person close to the transaction.
“It’s a natural move since the debt market has become more difficult," said an Asia DCM head. "We had two weeks of extremely wide levels, then last week was good, then this week it’s tough for issuers again.”
Another bond banker said there was a clear need for Chinese high-yield property companies to tap other instruments.
Jiayuan, which focuses on residential and commercial properties in major cities in the Jiangsu province, in May raised US$130m from a 2.75-year non-call two senior note at 96.638 to yield 12.5%. For the CB, the credit spread was assumed at 1,250bp and implied volatility at 6.8%, giving a bond floor of 93.7.
Jiayuan is rated B2/B/B and the CBs are expected to be rated B by Fitch.
The books were about 3x covered with fewer than 20 investors participating. There was a same-day upsize option of US$30m which was not exercised.
About 54% of the deal went to fixed income investors and the remaining 46% to equity-linked investors. There is little stock borrow available, making the deal less attractive to hedge funds.
Geographically, demand was mainly from Asia, though there was participation from a couple of European ESG-focused investors. The top five investors took more than 75% of the deal.
The CBs traded at 100–100.5 on Thursday morning. Jiayuan shares fell 2.4% to HK$3.22.
Jiayuan will use the proceeds to refinance debt in accordance with its green projects, including green buildings, pollution prevention and control, sustainable water management, renewable energy and clean transport.
HSBC was sole green structuring adviser, and joint bookrunner with Valuable Capital and BOCOM International.
In October 2016, Modern Land (China) priced the first offshore green bond from a Chinese real estate developer with a US$350m three-year issue. This was also the first high-yield green bond from China.