CAR Inc’s US$500m high-yield debut is the type of offering that is crucial to driving Asia’s bond markets forward. It is the first issue from a sector that is new to the region, but can attract a global following, and a fast-growing credit interesting enough to engage investors in a challenging price-discovery process.
CAR did more than just tick the right boxes for a slick high-yield offering. It set a new standard for the Asian high-yield sector.
The company’s offering was the first from the Chinese car rental sector, an industry that is still developing, but is expected to grow quickly as one of the world’s most populated countries ushers in a burgeoning middle class.
The deal benefited from three months of work to get credit ratings of Ba1/BB+/BB+, higher even than those of its US peers, including Hertz, a major shareholder at the time.
Investors were so keen on this opportunity that bankers were confident they could ride a market backdrop other high-yield names did not dare to test.
The Asian high-yield sector stalled in early 2015 after Kaisa became the first Chinese property developer to default on its offshore debt payments, sending shockwaves through the wider market.
China’s slowing economy was also raising concerns among investors, leaving appetite for PRC high-yield credits as weak as ever.
After sounding investors and waiting for the right window, joint global coordinators Credit Suisse (left lead) and Standard Chartered, along with bookrunner Deutsche Bank, announced the five-year non-call three US dollar benchmark bonds on January 28 at initial guidance in the 7.0% area, marking the first such transaction from China in 2015.
The result exceeded even the wildest expectations. Final pricing was tightened a whopping 62.5bp from initial price guidance to yield 6.375%, thanks to a US$7bn order book. US interest was so strong that the deal was pumped up an extra US$200m from the initial target.
In the end, the US/Europe investor mix of 35%/20% was akin to a well-distributed investment-grade offering.
“The transaction was instrumental in reopening the market for Asian high-yield issuance amid challenging market conditions,” said Derek Armstrong, head of the non-Japan Asia debt financing group at Credit Suisse. “The bond issue also represents an important development in the diversification of the Chinese high-yield market outside of the property sector.”
The bonds traded well and CAR was able to return for a second bite six months later, while its nearest Chinese rival was forced to pull its deal.
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