REVIEW: NEW WORLD CHINA RIDES PARENT HALO TO SEAL DEBUT BOND
HONG KONG, Oct 31 (IFR) - New World China Land sold USD900m of 5-year Reg S bonds in a debut dollar offering last night. The overwhelming response from investors pointed to the strong appeal of the New World brand name among retail investors and the value investors assign to its savvy management team.
The 9x-covered book for an unrated high-yield China-focused developer is also an encouraging sign for other PRC developers unable to tap the market for more than a month due to market volatility and news of Agile Property’s struggle to refinance a bridge loan.
However, both leads and investors said New World China was a slight different animal because parent New World Development was based in Hong Kong and utilised international operating standards.
“The successful debut transaction for New World China is testimony to the New World brand, as well as the good work of the management,” a banker on the deal said.
As expected, private banks turned out biggest buyers taking 53% of the paper, lured with a 25-cent rebate. The remainder was allocated to fund managers (35%), banks (6%) and corporations (6%). As much as 91% of the paper was allocated to Asian investors.
The leads went out with an attractive initial talk price of 5.75%, or 415bp over Treasuries, for a pick-up of around 130bp over its parent’s curve. The parent provides a letter of support.
The ballooning order book resulted in a 30bp tightening during the bookbuilding process to 5.45%, which is around 100bp over the parent’s curve. Investors generally view New World China as a BB+ credit and parent New World Development as BBB.
The leads also referenced Greenland Hong Kong’s (Ba1/BB+/BBB-) August 2017s, which were indicated at a G-spread of 374bp.
According to some analysts, the bonds will have upside when New World China Land, a 70%-owned unit of New World Development, becomes a full subsidiary of the parent. The parent tried to privatise New World China Land in June this year, but minorities voted down the proposal.
“I would guess that this [privatisation] will happen at some point during the life of the bonds,” wrote Charles Macgregor, head of research at Lucror Analytics, in an email.
“If the transaction is successful, this would demonstrate NWDEVL’s strong support for NWCL, although this might lead to a reduction in transparency and disclosures,” DBS analysts wrote on a research note published yesterday.
The bonds come with a change-of-control put exercisable at 101, if the parent’s stake in New World China Land falls to less than 55%. Bondholders can also put the paper at 101 if New World Development withdraws the letter of support.
Bank of China International and HSBC ran the transaction. The paper was indicated around 100.25-30 in the morning, up from reoffer price of 99.676.