Jonathan Rogers
IFR Asia Columnist
I MUST ADMIT that when Vietnam’s property-to-tourism conglomerate Vingroup failed last Wednesday to price a planned 4.5 non-call three-year, I wrote it off.
Guided at 12% that morning in Asia, the deal looked as eminently “pullable” as any to have drifted into Asia’s high-yield space this year. It operates in an unloved sector – Vietnam’s ponderous property market – and given that it was to be biggest public dollar bond from Vietnam’s private sector, there were no comps to reference for fair pricing. I assumed the critical mass of bids necessary to get the deal across the line had failed to be assembled and that the thing would go away.
I was wrong, but there was a slight vindication to my position. Some US investors on the 144A/Reg S trade that had indicated they were good to go for a Wednesday deal requested more time from leads Credit Suisse, Deutsche Bank and ING to do more credit work. That seemed sensible – even if they were the same investors that had looked at Vingroup when it first attempted the issue back in December 2012.
Vietnam’s property sector is under-researched and it’s always tough to convince yourself you have done the required amount of due diligence in faraway jurisdictions of which you know little. That’s why this trade had rather more “investor education” tacked on as a prerequisite for execution than most of the high-yield deals that have hit the tape in Asia this year.
In the event, Wednesday’s delay turned out to be just that and not only did Vingroup’s US$200m deal price the following day – at an astonishingly early 4.48pm Hong Kong time – it did so at the revised 11.875% guidance that was announced on Thursday morning in Asia. Alright, a one-eighth of a percent iteration is hardly high-octane compared with the three-eighths that China Citic Bank shaved off its Basel III-compliant Reg S on the same day. But the optics would have impressed the issuer and Credit Suisse was actively supporting the trade last Friday in Asia.
You need that if you dare to play ball with the notoriously flaky private bank bid, which flips on a 10 cent loss at the break and does the same for a 10 cent gain. So the deal managed a respectable 101 bid off a par reoffer the following morning in Asia, which is just about what any syndicate manager would be hoping for on a newly priced high-yield deal.
THERE CAN BE absolutely no grumble with regard to the execution of the Vingroup deal, but the question is whether it is just another plank on the bandwagon that has built up around the conglomerate this year. Barely 10 days ago Credit Suisse, Deutsche and Maybank teamed up to lend Vingroup US$50m in a syndicated loan, to add to the US$100m they stumped up for the company less than a fortnight before.
Perhaps they know something we don’t. As, presumably, did US private equity firm Warburg Pincus, which injected US$325m of equity into Vingroup last May, of which US$200m is earmarked for the company’s Vincom Retail real estate arm. So in the space of about six months, the conglomerate has received, for want of a better word, US$675m of largesse from offshore investors and lenders.
But for the time being, it seems no one wants to pile into the Vietnam property market and the domestic property operators are suffering. There is a glut of supply, construction firms that built too much are now sitting on debt and are too short of capital to be able to engage in new projects.
The Vietnamese government has acted to try to address these shortcomings by offering to allow foreigners to buy residential property and coming up with a low-interest subsidised mortgage scheme in the hope of giving the market a shot in the arm. To my mind it somehow has an air of desperation about it. But then again how many new-money buyers were caught in the post-SARS property price dip in South East Asia? Not too many, I’d bet.
For the time being, it seems no one wants to pile into the Vietnam property market
BUT IT SEEMS to me there’s just too much money being thrown at Asia’s property companies. And even though China property prices continue to rise, despite the best efforts from the authorities to quell them, you’d have to wonder just how the huge humps of issuance that fall due in 2017 and 2018 will get refinanced if prices have gone the other way in the meantime.
I’m not aware of the terms Warburg Pincus and the three lending banks agreed on their investment and loans, but judging by the pricing of the bond it would have been something rather sweet. The leads had to jump around the China property sector for comps, and even then chucked something in the region of 250-odd basis points new issue concession to pique investors’ interest.
That puts Vingroup’s trade in the upper echelons of the Asia G3 high-yield space, coupon-wise, as far as what’s been printed this year. The lousy sector backdrop provides a good reason for that, but it might just be that 11.875% is too cheap and that this bond presents an ideal, return generating piece of exposure to Vietnam property.
China realtor Cifi priced a 12.25% due 2018 at par in April, only for it to scream up to 110 on the view that it was too cheap and it was holding 111 bid last week. Perhaps I got it wrong on Vingroup. I wonder if it sells in odd lots?