Bloomberg News

KWG Property Pulls Dollar Bond Sale as Cheung Kong Notes Fall

January 17, 2013

KWG Property Holding Ltd. (1813) pulled an offering of U.S. dollar-denominated bonds and notes sold by Cheung Kong Holdings Ltd. (1) fell in their first day of trading. Yield premiums in Asia rose.

KWG Property, the Hong Kong-listed developer whose projects include the five-star Sheraton Huadu Resort in Guangzhou, has “temporarily canceled” a planned sale of perpetual securities and will monitor the market, said Roger Law, vice president of finance at the company. Undated debt sold at par yesterday by Cheung Kong, controlled by Asia’s richest man Li Ka-shing, fell as low as 96 cents on the dollar today and was quoted at 97.5 as of 12:56 p.m. in Hong Kong, BNP Paribas SA prices show.

Companies in Asia outside of Japan sold $3 billion of debt yesterday, the most since May, as emerging-market bond funds attracted the largest amount of money since the beginning of 2012 in the week to Jan. 9, according to EPFR Global. The average yield premium issuers in the region pay to sell dollar notes rose 6 basis points to 257 basis points yesterday, the biggest one-day increase since Nov. 8, JPMorgan Chase & Co. indexes show.

“The pulling of KWG’s deal suggests investors are starting to take a closer look at structural considerations,” said Mark Reade, a Hong Kong-based credit desk analyst at Credit Agricole CIB. “It’s positive for Asian credit markets’ long term survival.”

Agile Bonds

Agile Property Holdings Ltd. (3383) issued Asia’s first perpetual dollar bonds of the year on Jan. 11. Developers Guangzhou R&F Properties Co. and Yuexiu Property Co. sold dollar bonds yesterday, with the former raising $400 million via notes due 2020 and Yuexiu selling $850 million of debt in a two-tranche offering, data compiled by Bloomberg show.

Thai Oil Pcl (TOP) is offering 10-year bonds at a spread of about 210 basis points more than Treasuries and 30-year notes at about a 225 basis-point premium, a separate person said. This would be the oil refiner’s first dollar security since 2005, Bloomberg data show.

KBC Bank NV, a unit of Belgium-based lender KBC Groep NV (KBC), is also marketing a sale of U.S. currency 10-year subordinated notes at a yield around the mid-8 percent area, a person familiar with the matter said today.

KWG Property had planned to sell securities that it could opt to buy back after 5 1/2 years, a person familiar with the matter said on Jan. 15. If it didn’t, the coupon was to reset based on prevailing five-year Treasuries and every five years after, and increase 25 basis points after 10 1/2 years with a further 75 basis-point rise after 20 1/2 years, according to the person.

‘No Urgency’

“Right now, the company doesn’t have any urgency for the financing,” KWG’s Law said in a telephone interview today. The company raised $400 million from a sale of bonds in March last year and has the equivalent of $1.03 billion of bonds and loans outstanding, according to data compiled by Bloomberg.

Cheung Kong sold $500 million of perpetual bonds at 5.375 percent, according to data compiled by Bloomberg. The coupon on Cheung Kong’s bonds will be fixed for life even if the notes, which can be bought back by the company after five years, aren’t called, the data show.

Private banks bought 60 percent of the notes, according to a person familiar with the matter, who asked not to be identified because the details are private.

Credit Risk

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan decreased two basis points to 109 basis points as of 8:19 a.m. in Hong Kong, according to Royal Bank of Scotland Group Plc prices. The measure has declined 4.4 basis points this year, after sliding 93 in 2012, according to data provider CMA.

The Markit iTraxx Japan index was trading at 143.5 basis points as of 4:46 p.m. in Tokyo, Citigroup Inc. prices show. The benchmark closed at 142.8 yesterday, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Australia index was little changed at 116 as of 11:20 a.m. in Sydney, according to National Australia Bank Ltd. prices. The gauge has retreated 11.5 since Dec. 31, extending a 53 basis-point drop in 2012, CMA data show.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

To contact the reporters on this story: Rachel Evans in Hong Kong at revans43@bloomberg.net; Tanya Angerer in Singapore at tangerer@bloomberg.net

To contact the editor responsible for this story: Shelley Smith at ssmith118@bloomberg.net


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