Two Chinese high-yield industrial names, China Hongqiao Group and Fosun International, opened the market this year with successful US dollar bond sales as investors across Asia and Europe start to warm up to such credits.
Hongqiao got the ball rolling in style on Monday with a US$330m 7.05% three-year bond. Books opened at initial price guidance of 7.5% area and grew to US$3.9bn, or more than 10 times cover. Orders were almost double the US$2.1bn the issuer had gathered for a US$300m 7.75% 364-day deal in March last year.
The strong momentum caught the attention of Fosun International, which started working on an opportunistic trade after seeing Hongqiao's final guidance, which tightened 45bp from IPG.
The following day, Fosun priced a US$200m tap of its 8.5% 2028 bond that closed almost five times covered. The tap, which brings the outstanding size of the line to US$500m, was priced at 100.75 to yield 8.233% after being initially marketed at 100.125 area.
"It's been a few years since the reshuffling of China's high-yield market happened, and it seems that things started to settle down. The geopolitical tension is always going to be in the background, but at least meaningful transactions are now being done," said a banker on Hongqiao's deal.
A lot of focus has been put on China high yield after Fosun's original bond in November. The well-received deal reopened the market for the first time since the country's property crisis and encouraged other issuers to consider returning.
"There have been accounts monitoring Asia and China high yield over the years despite the volatile situation from time to time," said another banker on Fosun's deal. "We started to see real money who haven't been seen in China and Asia high yield for years are now willing to reengage."
Bankers said the two successful deals are "encouraging" and they expect more to follow. But they admit that supply will be limited as there are only a handful of industrial names and the market is not ready for property developers.
"Some are looking to come in the first half this year," said another banker on Hongqiao's deal. "But not many companies are similar to Hongqiao and Fosun. They may have to rely on anchor investors and reverse enquiries, so it'll be a different dynamic and marketing."
Balanced choice
Hongqiao had been preparing the deal for a while to refinance a US$300m bond due in March. It always eyed last week, and decided to come out on Monday as the market remained relatively stable since the new year and no directly competing mandates were announced the previous week.
"It's the first high-yield deal of the year, and there's a lot of pent-up anticipation and demand from investors ... Investors are more constructive at the turn of the year," said the first banker on Hongqiao's deal. He said many high-yield investors had good returns in 2024 and are actively looking to put more money to work.
Hongqiao's disciplined approach to pricing and size paid off. The target size was US$300m and the company said it could upsize to US$400m if pricing was favourable. In the end, it kept the increase to just US$30m, striking a balance between maintaining an offshore presence and managing the overall funding cost.
There was a bit of price discovery required due to the lack of direct comparables. The leads used the outstanding 7.75% bond as reference, but investors also looked at high-yield names across Macau's gaming sector, as well as Japan and India.
"With the huge order book, we could have gone inside 7%. Would you call that fair value? It's hard to say. But the company decided to leave at least 5bp for everyone," said the second banker on Hongqiao.
The bonds were bid up at 100.95–101 at the highest level in the secondary market and later settled at around 100.75.
The final book of US$3.9bn, including US$510m from the leads, comprised 190 accounts. Asia Pacific took 93% of the bonds and EMEA and offshore US the rest. Asset and fund managers accounted for 73%, sovereign wealth funds, insurers and pension funds 8%, corporates and others 10% and banks, financial institutions and private banks 9%.
The bonds are guaranteed by subsidiaries China Hongqiao Investment, Hongqiao Investment (Hong Kong) and Hongqiao (HK) International Trading.
China Citic Bank International was the lead global coordinator. It was also joint global coordinator, bookrunner and lead manager with Credit Agricole, UBS, Barclays, Guotai Junan International, BOC International, China International Capital Corp, CMB International, DBS, Deutsche Bank, Dragonstone Capital, Flow Capital, Fortune Origin Securities, Standard Chartered, SunRiver International Securities Group and Haitong International.
Rating focus
Fosun International's tap was part of its continued focus on improving its credit rating. The conglomerate has always kept an open mind about its refinancing strategy. It has access to various funding channels, including bank loans, but bonds, which offer a longer tenor, will be helpful in improving its debt profile and potentially lead to a rating upgrade.
The proceeds will be used to finance a tender offer it simultaneously launched for its outstanding US$399.998m 5.95% 2025 notes. The maximum acceptance amount is capped at the amount of the new issue, meaning the company extended its debt maturity while maintaining the same leverage.
"I think the rating agencies will take a positive view towards the tap. Fosun didn't have access to the market 18 months ago, and now they printed two deals within a span of two months which is a really good sign," said the first banker on the deal.
Fosun kept the tap at US$200m to avoid a big maturity in any given year. Management said during the investor call on Tuesday that it is open to utilising proceeds from asset disposals, cash on hand or a new deal to refinance the remaining US$200m of the 2025 note.
The final book reached US$950m from 87 accounts, including US$90m from the leads, after peaking around US$1.1bn at final guidance. APAC was allocated 88% and EMEA 12%. Asset and fund managers took 90% of the notes and private banks and financial institutions 10%.
Thanks to the strong demand, the tap came more than 25bp inside the original bonds and offered minimal premium by using the original bond as a comparable. The original bonds were trading at 101.125 pre-announcement.
The bonds were trading at reoffer in the second market on Wednesday.
The senior notes were issued by Fortune Star BVI and guaranteed by Fosun International. The Reg S trade will be rated BB– by S&P.
Deutsche Bank, BNP Paribas, China Citic Bank International, Fosun International Securities, HSBC, Natixis and Standard Chartered were the global coordinators. They were also bookrunners and lead managers with Credit Agricole, CMB International and ICBC International.
The tender will expire on January 15.
Deutsche is the dealer manager for the tender, and DF King is the information and tender agent.