Chinese property company Redco Properties Group on April 7 priced its first sustainability bond amounting to US$220 million, taking advantage of an opportune issuance window.
The Reg S 364-day offering was priced at 98.375% with a coupon of 8% to offer a yield of 9.75%. This was the lowest coupon on a US dollar bond achieved by the company since 2019 and the yield was 25bp inside the initial price guidance of 10% area. The pricing was regarded in line with fair value with minimal new issue concession.
The transaction was timely executed following the announcement of strong financial year 2020 results and its sustainable finance framework. It also came on the back of a one-notch rating upgrade by Fitch Ratings and was launched in the market with no competing supplies from the Chinese property sector on that day.
The deal attracted immediate momentum from investors with the orderbook amounting to over US$700 million in the morning of the April 7 and continued to grow in the afternoon to US$1 billion. The total demand exceeded US$1.1 billion by the time of the final price guidance announcement, or an oversubscription of 5.5x.
Proceeds from the bond will be used to refinance some of existing medium- to long-term offshore indebtedness, which will become due within one year, and in accordance with the company’s sustainable finance framework.
Credit Suisse and Standard Chartered acted as the joint sustainability structuring advisers for the deal, as well as joint bookrunners and lead managers along with Barclays, BNP Paribas, Deutsche Bank, Haitong International, HeungKong Financial and UBS.
Fitch on March 10 announced a rating upgrade for Redco from B to B+ to reflect the company’s expanded attributable contracted sales, which rose 49% to 21.3 billion yuan (US$3.25 billion), and adequate land bank that can sustain the contracted sales growth in 2021. Redco also maintained its geographical diversification, with 126 projects in 36 cities. It also forecasts its leverage – measured by net debt/adjusted inventory, including proportional consolidation to joint ventures and associates – to remain below 35%.
“We believe Redco can maintain a low leverage ratio as it continues to build a sufficient land bank size to sustain rising contracted sales. Redco has saleable resources for around three to four years of development,” Fitch adds.