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Tue, 2014-10-28 14:23 by Lianting Tu
HONG KONG, Oct 28 (IFR) – China Hongqiao Group took advantage of a stabilising market to sell USD300m of 3.5-year Reg S bonds last night. The successful print of the BB rated offering reaffirms returning investor appetite for Asian high-yield paper. China Hongqiao was the second high-yield borrower to tap the bond market after a month-long hiatus of zero issuance in the space due to heightened volatility in US Treasury yields and a deteriorating property market in China. Tata Motors reopened the Asian high-yield market last week with a USD750m dual-tranche offering. The Hongqiao offering priced at 6.875%, a whopping 50bp inside the initial talk. The fact that the order book reached USD5.2bn also showcased rebounding appetite among investors to pick up juicy yields on quality high-yield names. “The deal showed investors want to put money to work as long as the pricing is right,” said a banker on the deal. The deal also shows there are a number of high-yield borrowers waiting in the wings to tap the bond market as soon as the market stabilises, a banker away from the deal noted. Some high-yield industrial borrowers as well as some property names are likely to tap the market before year end, he added. Hongqiao decided to pull the trigger on Monday after steady tightening in spreads last week in the secondary credits as well as a solid rebound in the equity market. The new bond paid a premium of 20bp-30bps after adjusting for its existing curve, analysts said. The decent premium has also bolstered the trading in the secondary market. The new paper, priced at par, was indicated at 100.75/101.00 in the morning. China Hongqiao recorded strong top line growth in the first half of this year. Its 1H revenue jumped 28.6% and Ebitda rose 7.8% year-over-year. Lower aluminum prices, however, have hurt its margins. Its gross profit margin declined 7.5 percentage points to 21.9%. The company’s liquidity conditions improved in the first half with cash and short term investments standing around CNY10.3bn at the end of June, compared to CNY6.4bn at end-2013. However, the cash on hand fell short of covering short-term debt of around CNY14.2bn, although analysts expect some of its short-term debt to be rolled over. In terms of leverage, its debt-to-Ebitda ratio was moderate at 3x and interest coverage ratio at 4.4x, according to Lucror Analytics. “The company’s debt maturity profile is still not well structured (as its) debt is either short term (almost half) or has a three year tenor,” according to a research note from the high-yield research house. Around 300 accounts invested in the deal. Asian investors bought 75% and Europeans bought 25%. By account type, fund managers took a chunky 81%, private banks 10%, insurance and corporate and others took the remainder. Deutsche Bank was the left lead alongside ANZ, Bank of America Merrill Lynch, BOC International and Morgan Stanley. |
