Central China Real Estate (CCRE), a leading property developer in China’s Henan province, reopened the high yield bond market in Asia when it priced on April 14 a US$300 million offering, taking advantage of a strong rally in the secondary market.

The Reg S 5.75-year non-call 3.75-year deal was priced at par with a similar coupon and re-offer yield of 8.75%. This was 37.5bp tighter than the initial price guidance of 9.125%. The bonds were trading well in the secondary market a day after pricing, ranging from 99.85 to 100.50 with strong retail demand amid some institutional profit-taking.

The CCRE deal came more than a month after another property company Shimao Property Holdings raised US$300 million in a tap of its outstanding 2022 bonds on March 10. The sector had been under pressure due to concerns around the troubled Shenzhen-based property developer Kaisa Group Holdings, which is now undergoing a debt restructuring.

“While there was some background noise about Kaisa Group and on the challenges facing the Chinese real estate sector, investors are well aware of the high quality property names,” says a banker familiar with the transaction. “Central China Real Estate is a high quality credit in the BB space with a very focused strategy. They conduct non-deal investor meetings, so investors are fully aware about the dynamics of the company.”

The Ba3/BB- rated CCRE picked an optimal window in launching the bond offering, coming into the market following a strong rally in the secondary market for high yield, so the technicals were strong. “We have seen about 3-4 points improvement in the secondary market in the Chinese real estate during the past two to three weeks against the backdrop of favourable policy decisions by the Chinese government,” the banker points out. “At the same time, the equity market was rallying quite strongly in China and Hong Kong, as well as in the US and Europe, so the risk-on mode is on.”

As such, the arrangers had a good market backdrop when it announced the transaction and it was a matter of going out with the right initial price guidance to ensure that they would get the maximum traction from investors across the board, both institutional and private banking.

The deal was launched with an initial price guidance of 9.125% and eventually generated an order book of over US$3.5 billion from about 160 accounts. The robust demand and the quality of investors enabled CCRE to revise the guidance and eventually print the deal 37.5bp tighter at 8.75%.

As a reference point, CCRE has CNH, Singapore dollar and US dollar bonds out there in the market, so investors can see their relative value and compare how they were trading against their peer group. Technically speaking, the banker notes, the new bonds were trading almost flat to their secondary levels.

In terms of geographic distribution, 86% of the bonds were sold in Asia and 14% in Europe. By type of investors, fund managers accounted for 66%, banks and private banks 29% and others 5%.

Proceeds from the transaction will be used to repay existing indebtedness and for general corporate purposes. BNP Paribas, Deutsche Bank, Morgan Stanley and OCBC Bank acted as the joint book-runners for the deal.