News
HY coupons scale new heights
Bonds Two Chinese dollar bonds price at highest yields from Asia since 2014BY DANIEL STANTONTwo Chinese borrowers priced
US dollar bonds last week at
the highest yields for any Asian
new issue in four years, in a
sign that continuing aversion
to emerging-market risk is
taking a steep toll on corporate
funding costs.
Developer ZHENRO PROPERTIES
GROUP (B2/B/B) on Wednesday
priced a US$280m 12.5% 2.25-
year bond at 97.780 to yield
13.7%. The bonds are expected
to be rated B3/B– (Moody’s/S&P).
This was the highest yield
on a US dollar issue from
Asia since August 2014, when
Jingrui Holdings printed a
US$150m 13.625% five-year
non-call three at 98.683 to yield
14%, according to IFR data.
Those bonds were rated B2/B
(Moody’s/S&P) at issue.
Also on Wednesday, MAOYE
INTERNATIONAL HOLDINGS sold a
US$150m two-year non-put
non-call one note at par to
yield 13.25%. Those bonds are
not rated, but the Chinese
department store operator has
issuer ratings of B3/B– (Moody’s/
S&P).
“These deals look cheap, but
all the high yield issues are
going this way anyway,” said
a fund manager. “They’re just
opening the door for others
to follow. Even 15%-16% is
viable for Chinese property
companies, because their profit
margins are 20%-plus and dollar
bonds are a small part of their
overall funding.”
Zhenro is a fairly new credit
to offshore investors, having
made its offshore debut with a
private placement in May and
sold US$250m of two-year notes
in June.
A source close to the deal
said the developer was trying to
establish offshore benchmarks
and diversify its funding
channels, even though it cameat a cost. Back in June, Zhenro
had paid 11.5% for two-year
money, reflecting the rise in
market rates since then.
The issuance size of
US$280m was at the top of
Zhenro’s target of US$250m–
$280m, and orders totalled
around US$600m.
“The Asian high-yield market
is still functional and there is
still liquidity to be deployed,”
said the source. “New issue
premiums are significant at
25bp–50bp or higher, but for the
right credits and refinancings,
the market is okay.”
No details of demand were
released for Maoye’s deal, and
the lack of a rating suggested
either that the issuer did not
think it was worth the cost
and effort for paper that will
probably be redeemed in 12
months, or that the offering
was targeted at Chinese
investors or those who knew
the company well.
Both Zhenro and Maoye have
short-term refinancing needs
and plan to use part of the
proceeds to repay debt.Zhenro reported short-term
debt of Rmb26bn (US$3.8bn)
at the end of June, including
Rmb2bn in puttable bonds,
according to Moody’s.
Maoye was refinancing
a US$300m 364-day note
maturing on October 23, but
had to pay a far higher rate in
current market conditions than
the 7% coupon on the existing
bonds.364-DAY RECKONING
The starkly higher yields
highlight the risks of the recent
trend for Chinese issuers to
sell bonds with a maturity of
less than one year to skirt the
lengthy approval process for
offshore bond issuance. Many of
them, like Jiayuan International
and Hainan Airlines, have high-
yield ratings or are unrated.
“There are a lot of 364-day
notes coming due at the end
of this year, so you could see a
lot more of this,” said a banker
away from the deals.
Maoye has other ways to
refinance the remainder of its
October maturity. S&P said inAugust it had new bank lines
of about Rmb1.4bn and an
approved secured bank line of
around Rmb2.1bn, as well as
approvals from the Shanghai
Exchange to issue a Rmb1.1bn
exchangeable bond and asset-
backed securities of Rmb1.4bn
at the parent level as a back-up
plan.
The same month, Moody’s
revised Maoye’s outlook to
positive from stable, citing its
more prudent financial strategy.
Deutsche Bank, BNP Paribas,
CEB International, China
Industrial Securities International,
CMB International, Haitong
International, HSBC and UBS,
plus late addition Future Land
Resources Securities, were joint
global coordinators and joint
bookrunners for the Zhenro
trade.
Deutsche, Guotai Junan
International and UBS are
joint global coordinators for
the Maoye deal and joint
bookrunners with Haitong
International, DBS Bank, Guosen
Securities (HK), CMB Internationaland AMTD. (^)
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