The seven-year non-call four offering, rated Ba3/BB, was priced at par with a coupon of 9.25%, which was in line with the guidance. It attracted demand of US$270 million from 42 investors with Asian investors accounting for 69% of the paper and the European investors taking the remaining 31%. "It was very pleasing to be able to re-open the high yield market in Asia," says Sean Henderson, head of syndicate for Asia at HSBC, which acted as the sole bookrunner for the transaction. "It has been a very challenging time for the high yield market globally. Investors are more constructive after the release of the US data on non-farm payroll, though there are still some concerns about the long-term prospects for the US economy." HSBC faced a number of challenges in bringing the deal to the market. "Hang Fung has a competitive growth target to meet and does have a fair degree of leverage, which was one of the things that we needed the investors to get comfortable with," explains Henderson. "It has a unique story and its assets provided some comfort with close to US$148 million in gold display items and inventory. The company can easily melt down any gold stock if the design goes out of fashion." In launching the deal, Henderson says there is a need for a new issue premium to be able to come to the market. "Investors still feel some headline risks on the broader US economy and as a result, they are requiring new issue premium to take on additional exposure to the market.

Long track record

Henderson says Hang Fung is a very good name to re-open the high yield market. It has a long track record of more than 30 years in the business and has a vertically integrated operation and that model works very well. "The company has over 130 stores and the story is an interesting play on the growth of disposable income in Greater China," he adds. "This dynamic has helped generate demand for jewellery products from retail customers." There was quite a bit of an issue regarding the size of the deal. "We initially announced a size of about US$150 million and we revised it to between US$150 million and US$175 million on the release of the price guidance in the 9.25% area," says Henderson. "We've been discussing with the company a potential upsize based on the amount that they need to pay down short-term debts and for their capacity expansion. They eventually decided on US$170 million at the time of launch."

Moody's says Hang Fung plans to aggressively expand into the retail segment in China and aims to almost triple its retail store outlets to over 300 by March 2009. It adds that the company plans to expand half of its retail operations through franchise arrangements and the balance through self-owned stores. By type of investors, funds bought 56% of the bonds, followed by banks with 32%, and insurance companies and pension funds 12%.