USD New Issue Review : GRAND CHINA AIR (HK) 2Y 5.75%


Issuer:  Grand China Air (Hong Kong) Limited
Guarantors:  Grand China Air Co., Ltd. and Hainan Airlines Co., Ltd.
Status:  Senior Unsecured Guaranteed Notes
Rating: Unrated
Currency: USD
Issue Date:  [?] April 2015
Issue Size:  US$ Benchmark
Tenor:  2yrs non-call 1yr
Price Guidance: 5.75% area
Optional Redemption:   At any time on or after 1 year from the Issue Date, the  Notes may be redeemed at the option of the Issuer in  whole or in part at any time at a price equal to 101 per cent. of their principal amount together with interest  accrued but unpaid to the date fixed for redemption.
Change of Control Put:  Noteholder put at 101% if: (i) any person or persons  acting together acquires control of either Guarantor if  such Person or Persons does not or do not have, and  would not be deemed to have, Control of such Guarantor  on the date of issuance of the Notes; or (ii) one or more Persons acting together acquires the legal or beneficial ownership (directly or indirectly) of the  issued share capital of either Guarantor greater than  such beneficial ownership (directly or indirectly) held by the Substantial Shareholders (as defined below) in aggregate; or (iii) the Substantial Shareholders (Hainan  Bureau of SASAC, HNA Group Co., Ltd., Grand China Air  Co., Ltd. and Haikou Meilan International Airport Co.,  Ltd.) in aggregate beneficially own (directly or  indirectly) less than 35% of the issued share capital of  the Guarantor Hainan Airlines Co., Ltd.; or (iv) the Substantial Shareholders (Hainan Bureau of SASAC and HNA Group Co., Ltd.) in aggregate beneficially own (directly  or indirectly) less than 35% of the issued share capital of Grand China Air Co., Ltd.; or (v) either Guarantor  consolidates with or merges into or sells or transfers  all or substantially all of its assets to any other  Person, unless the consolidation, merger, sale or  transfer will not result in the other Person or Persons acquiring Control over such Guarantor or the successor entity
Format: Regulation S
Payment: Semi-annual, 30/360 (fixed)
Denomination: US$200,000 X US$1,000 denoms
Listing:  SGX-ST
Clearing:   Euroclear / Clearstream
Governing Law:  Hong Kong Law
Use of Proceeds:   Working capital and other general corporate purposes  including the procurement of aircraft, aviation and  transportation equipment and aviation fuel in compliance with the relevant requirements imposed by SAFE
Timing:  As early as today

– New 2yr US$ benchmark deal announced anchored by reverse enquiries
– IPG @ 5.75% area
– Joint & several guarantee from Hainan Airlines and Grand China Air Co., Ltd

Comparables :

SGD Grand China Air HK  6%  11/17. 99.45, 6.24%  (~USD L+449 bps)
–>  Offers > 0.40% pick up vs Grand China Air SGD 6% 11/17

CNH  Hainan Airlines 6.25% 5/17 98.75, 6.88%  (~USD L+280 bps)
–>  Offers > 2% pick up vs Hainan Airlines CNH 6.25% 5/17

They were in the news last week when they managed to complete a Shanghai-Beijing flight using recycled “gutter oil”.

This is another company in the HNA Group that happens to be the cash cow and there is nothing distinguishing this onshore-offshore parent-subsidiary guarantee from the HNA International guarantee that we saw in their SGD bond last week.

I suspect this lucrative USD bond was awarded after the successful execution of the HNA International SGD issue where most clients I know got full allocation and clients who missed out managed to buy in the secondary market at lower prices the next day. (Lowest price noted was 99.30) [And it definitely would not be fair to say crudely that they stuffed HNA Intl down the throats of the investors to secure this bigger deal today.]

Grand China Air did a SGD bond last year too for a full benchmark size of SGD 250 mio to an oversubscribed order book.

The pricing is fair for this USD paper compared to the rest of the issues. I would highlight the risk that it is a private company and that it does not have much standing in international bond space which means that the paper may not be very liquid in the secondary with trading that may be restricted to Asia.

Good luck.