USD New Issue Review : Country Garden Holdings 5Y NC3 7.875%

It’s our lucky day … got this piece courtesy of friend who I hope will be able to write for us soon !


Country Garden Holdings Co. Ltd. (Country Garden) is marketing a new 5-year (nc3) senior unsecured bond. The proposed bonds are expected to be rated ‘Ba2/Positive’ by Moody’s, ‘BB+/Stable’, by S&P and ‘BB+/Positive’ by Fitch. The issue proceeds will be largely used to refinance the 11.125% ’18 notes. Initial price guidance has been set at 7.875% area.

* Issuer: Country Garden Holdings

* Guarantor: Certain of the issuer’s restricted subsidiaries outside the PRC

* Expected issue ratings: Ba2/BB+/BB+

* Reg S

* PB rebate: 25 cents

* Use of Proceeds : Refinancing 2018 notes and other debt, and related refinancing fees and expenses

* JLMs/JBRs: JPMorgan, Goldman Sachs, HSBC, Deutsche Bank and CLSA

* Information from people familiar with this offering, who are not authorized to speak publicly and asked not to be identified

Investors should be comfortable with Country Garden’s credit profile, with positive outlooks from both Moody’s and Fitch a testament to the strength of the company’s financials. It achieved a 22% yoy growth in contracted sales in 2014 despite a difficult year for the Chinese real estate market, one of the few developers which was successful in achieving its contracted sales target in 2014.

So how does it look compared to the secondary curve as well as comparable Chinese real estate bonds?

COGARD 7.875 2019s are quoted at 7.03% bid (Z+561), COGARD 7.25% 2021s are 7.72% bid (Z+602) and COGARD 7.50% 2023s are 8.29% bid (Z+643).

Applying a simple interpolation of the credit spread along the curve, a fair z-spread on the new 5NC3 would be +580 bps, implying a fair value of 7.41%.

Assuming a relatively chunky issue size of USD900mm (issue size of the 2018s to be called back is USD900mm), and a new issue premium of 25bps, as an investor, I would expect at least a 7.625% yield in order for the deal to perform on the break. Having said that, notwithstanding the recent strength in the Chinese property space, I would still be wary of any lingering Kaisa/Sunac-related weakness or corruption scandals that could weigh on the sector.

Shimao is the closest comparable in terms of credit quality and size. The Shimao 20s are 7.00% bid, which makes the new COGARD 5 year look attractive given that the former is rated lower by both Moody’s (Ba3) and S&P (BB-).

Last update on books is USD3bn (>3x). Given the order books (7x) and performance (up 2 points) of the recent Shimao 22s, I would not be surprised to see a final order book in excess of 5x for this new COGARD. The deal should do well if the issuer leaves some money on the table.