Euroweek debt capital markets, December 9 2010

Euroweek debt capital markets round-up, December 9 2010

YUZHOU

Yuzhou Properties completed a delayed five-year $200 million bond on Wednesday. The Chinese property developer, based in Fujian, became the second issuer of the week to complete a delayed bond after Hongkong Electric (see separate article).

BOC International, Nomura and Royal Bank of Scotland were joint book runners on the Regulation S/Rule 144a bonds, which are callable in the third year.

Yuzhou, a small-cap with corporate ratings of B1/B+ and issue ratings of B2/B, had previously canned a similar deal in November, so were pleased to attract a total book of $350 million from 70 accounts. But, while the return to the markets represented a success, it was not cheap. The bonds came with a 13.5% coupon and a re-offer price of 98.244%, giving a yield of 14%. That’s above the 13-13.5% yield guidance at the last attempt in November. Nevertheless, the total raised was greater than the $150 million the bookrunners were discussing in this second attempt to market the deal.

The overwhelming majority of the deal was taken up in Asia, where appetite for Chinese high yield issues remains reasonably strong. According to someone close to the deal 96.5% was placed in the region, and 3.5% in EMEA. The types of buyers were widespread, with 41% going to funds, 37% to private banks, 19% to banks and 3% elsewhere.

Yuzhou will use the proceeds to repay loans and for land acquisition funds. It is active in both residential and commercial property development, chiefly in Quanzhou, a city in Fujian province, and Hefei, which is about 130 kilometres west of Nanjing.

The return to the market of Yuzhou has refocused attention on Delong Steel, another Chinese small-mid cap that abandoned a bond in November. Delong, which is listed in Singapore, had been planned to price on November 23 with a US$500 million bond – which, like Yuzhou, was to have been a RegS/144a bond with a five-year non-call three structure. Credit Suisse had taken the issuer on a week-long global roadshow before delaying the deal, which was intended to refinancing an outstanding convertible bond, domestic debt and to provide capital for new acquisitions. However, at press time there was little sense of Delong planning a return before the end of this year. Someone close to the deal said Delong “continues to monitor the markets and timing will depend on market conditions.”

HONGKONG ELECTRIC

Hongkong Electric completed a $500 million 10-year bond on Monday at the second attempt. The Regulation S issue had been abandoned in poor market conditions late last month.

This time, the deal fared much better, attracting $1.8 billion of orders from 150 accounts. It was led by joint bookrunners HSBC, Royal Bank of Scotland and Standard Chartered, who priced the deal at 137.5 basis points over Treasuries – the tight end of 137.5-142.5 guidance, and below the 140bp guidance they had offered in November before tensions in Korea scuppered the deal. It carries a 4.25% coupon and comes off an existing MTN programme.

Hongkong Electric, which is part-owned by the tycoon’s tycoon Li Ka-Shing through Cheung Kong Infrastructure, offered investors exposure to a high grade, non-bank, corporate bond in Hong Kong – rather rarer than one might think.

Those close to the deal said that 65% of the paper was bought in Asia, and the rest in Europe or by offshore US accounts. 65% went to funds, 18% to banks, and 9% to private banks. The remaining 8% went to central banks, insurers and pensions. “That’s a large percentage for such high-quality, long-term investors,” says someone close to the deal.

The bonds have tightened considerably in secondary trading and at the time of writing were at 125 basis points over Treasuries, partly reflecting a move in the underlying rates: 10-year Treasuries have gone from 2.9% at pricing to 3.2% yesterday.

Hongkong Electric is expected to return to the market before long: some analysts had expected a total raising of US$1 billion.

Among other things, the deal’s revival shows how quickly world markets tend to shrug off tensions in the Korean peninsula. This is true on the debt and equity side of the market, internationally and even in Korea itself: in all recent incidents of tension (the shelling, the sinking of a South Korean warship, and North Korean missile tests) the KOSPI has recovered any losses within a few days, and foreign portfolio investment into the market has actually increased.

Briefs

Fortescue Metals Group, the Australian miner, was expected to price a US$800 million bond during US trading hours last night (Thursday). The deal is a seven-year non-call three bond, in a Regulation S/Rule 144a format, and is being sole led by bookrunner JP Morgan.

Fortescue’s bond is a swift return to the markets after raising US$2.04 billion in October, also through a Reg S/144a deal, this time a five year bond. On that deal, again led by JP Morgan but alongside Royal Bank of Scotland, over US$15 billion of bids were attracted, which may explain why Fortescue has been so quick to return to the same market looking for longer tenor. It will use the proceeds for capex and expansion of the business. The bonds are rated BB+ by Fitch.

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Australian Rail Track Corp raised A$200 million yesterday (December 9) in its debut MTN issue, a seven-year deal that was upsized from A$150 million. The deal, led by ANZ and Commonwealth Bank of Australia, attracted over A$300 million of demand and priced at 145 basis points over swaps, which was below price guidance of 150 bp.

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Several RMB deals were completing or in the market as Euroweek went to press. Yunnan Metallurgical Group raised RMB1.2 billion in a five-year MTN deal priced at 5.56% yesterday, with China Citic Bank bookrunner and China Merchants Bank joint lead. Another RMB1.2 billion deal, from Bank of Hangzhou, is expected to price today; this is a 10-year non-call five subordinated issue lead managed by Citic Securities. China Longyuan was expected to price a RMB4 billion dual tranche fixed-rate bond last night, with RMB 1 billion in a five-year tranche and RMB3 billion in a 10-year. UBS Securities was sponsor and bookrunner on that deal, with Hongyuan Securities a joint lead.

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GuocoLand, the Malaysian property developer, is on the road ahead of its debut US dollar bond, led by Credit Suisse. It is expected to visit Singapore (where it is listed), Hong Kong and London.