Sino-Ocean returns to USD bond market with tightly-priced perp deal

One of China’s major property developers, Sino-Ocean Group Holdings, returned to the US dollar bond market when it printed on September 12 a US$600 million perpetual securities deal in a tightly-priced trade.

The Reg S perpetual non-call five-year deal was priced at 99.562% with a coupon of 4.90% to offer a yield of 5%. This was in line with the final price guidance and 37.5bp tighter than the initial guidance of the 5.375% area. The bonds performed in the secondary market and were quoted at 99.80% after lunch on September 13.

Sino-Ocean has been absent from the US dollar bond market for quite some time, having last tapped the market in January 2015 with a dual-tranche transaction totaling US$1.2 billion comprising US$700 million for five years and US$500 million for 12 years.

Since then, the company has had its challenges and at one time had its rating on a negative outlook. S&P Global Ratings even downgraded its rating from BBB- to BB+ in June this year, after which the agency withdrew all its ratings at the company’s request. The decision to downgrade reflected S&P Global’s view that the Sino-Ocean’s strategic relationship with the largest shareholder China Life Insurance Company has not progressed as it expected.

With the negative outlook coming off due to improved credit metrics and with good 2017 interim results, the company was keen to access the market with perpetual securities, with the deal structured to get 50% equity treatment from Moody’s Investors Service and Fitch Ratings. Moody’s says the securities will slightly enhance Sino-Ocean’s equity base, as well as improve its debt maturity profile.

Since it’s been a while since they’ve accessed the offshore bond market, Sino-Ocean embarked on a roadshow that took them to Hong Kong, Singapore and London to update investors on their credit. The roadshow concluded on September 11 and following positive investor feedback, they decided to announce the transaction on September 12 with an initial price guidance of the 5.375% area.

The order book built nicely during the course of the day and peaked in excess of US$4.25 billion, enabling the company to push the guidance down to 5% (the number), the level at which they eventually printed the transaction. “It was a very aggressive level for them,” a banker familiar with the deal explains.

Taking a look at relative value, the best comparable is China Jinmao Holdings, also a Chinese property developer with a similar rating, which tends to trade much tighter. The China Jinmao perpetual was trading at 4.66%, and if extended to a new five-year because it has a call date in January 2022, it will be trading at around 4.78%, the banker says.

Incidentally, China Jinmao is a platform enterprise under the real estate and hotel segments of Sinochem Group, one of the state-owned enterprises that is approved by the State-owned Assets Supervision and Administration Commission (SASAC) to engage in property development and hotel operations as principal businesses.

Issued through Sino-Ocean Land Treasurer III Limited, the bond proceeds will be used for general corporate purposes. The deal garnered a final demand of over US$3.6 billion from 200 accounts with 89% of the bonds sold in Asia-Pacific and 11% in EMEA. By type of investors, fund managers accounted for 53%, banks 26%, private banks 16% and corporates 5%.

China CITIC Bank International, HSBC, Goldman Sachs and UBS were the joint global coordinators for the transaction, as well as joint bookrunners along with Bank of China (Hong Kong), China Merchants Securities (Hong Kong), DBS and Industrial Bank Company (Hong Kong). HSBC is the lead left bookrunner for the deal.

Sino-Ocean is a large-scale national property developer with projects in key Chinese economic regions. It focuses on mid- to high-end residential property development, investment and the operation of urban property complexes and offices, property services, community O2O, senior living, medical care, shared offices, real estate funds, equity investments, asset management and overseas investments. Its largest shareholder, China Life Insurance, has a 29.98% stake in the company as at June 30 2017.

Date

14 Sep 2017

Channel

Capital Markets

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