Country Garden Holdings, a leading Chinese integrated property developer, re-opened the US dollar bond market in Asia following the Lunar New Year break as it priced on February 26 a US$900 million offering that generated strong investor demand.

The Reg S five-year non-call three bonds were priced at par with similar coupon and re-offer yield of 7.50%. This was in line with the final price guidance, which was fairly aggressively revised from the initial guidance of 7.875% area.

The transaction has been broadly anticipated by the market as Country Garden has outstanding 2018 bonds, also amounting to US$900 million that are callable in February 2015. The use of proceeds was communicated to the market early on for this purpose, even as the company has other sources of funding.

The 7.875% initial price guidance, according to a banker familiar with the transaction, represented about 38bp back from Country Garden’s fair value when the arrangers announced the deal in the morning of February 26. The key reference was obviously the company’s existing credit curve. It has outstanding 2019 bonds trading at about 7.11% before the announcement of the new deal, and 2021 bonds, which were trading at 7.70%. “The arrangers put a bit of a concession when evaluating the initial price guidance,” the banker points out.

The offering gained traction from investors as the order book reached US$1 billion by 10.30am and by the time the price guidance was revised down to 7.50%, the demand stood at about US$5 billion.

“The good level of oversubscription was a testament to the nature of Country Garden, which is one of the largest private sector property companies in China,” the banker explains. “It is seen as one of the developers with good land bank and is historically profitable – a nice message to investors.”

The transaction was an opportunistic trade for Country Garden, taking advantage of the quiet issuance window following the Lunar New Year. It was effectively going into blackout from February 27 ahead of the announcement of its financial results around the second week of March.

While the 37.5bp tightening in the final price guidance was fairly material, it was not excessive given the recent volatility in the market. “The strong investor response gave the arrangers comfort where the deal was priced, which was borne out in the secondary market performance,” the banker adds. The bonds were trading at 100.30 in the morning of February 27.

The final order book stood at over US$4.8 billion from more than 280 accounts with 83% of the bonds sold in Asia and 17% in Europe. Fund managers were the biggest buyers as they accounted for 57%, followed by banks with 24%, private banks 13% and other investors 6%.

CLSA, Deutsche Bank, Goldman Sachs, HSBC, J.P. Morgan and Wing Lung Bank acted as the joint bookrunners and lead managers for the transaction. – CS