China SCE prints notes on busy day for Chinese developers; VEB, Eskom plan to issue notes

By Christine Van Dusen

Atlanta, Jan. 10 - China SCE Property Holdings Ltd. sold notes on a Monday that saw several real estate companies from China moving forward with deals as investors continued to ponder the European Union's consultation paper and worry about the European financial crisis.

"The market has definitely calmed down, post the grab-attack of the first days of trading in 2011," a London-based trader said. "It was an active morning and a lackluster afternoon."

Said Gavan Nolan, analyst with Markit, in a report: "The credit markets continued where they left off last week and extended their recent widening trend.

"The markets have had the weekend to digest the E.U. consultation paper on bank bailouts last Thursday and appear to have come to the conclusion that the implications for senior debt are as bad as they initially thought."

Monday also saw Russia's Vnesheconombank, Turkey's Akbank, South Africa's Eskom Holdings Ltd., Azerbaijan's Technikabank and Kazakhstan's JSC Halyk Bank move toward market with planned notes.

China SCE does deal

Xiamen, China-based residential real estate developer China SCE Property Holdings' RMB 2 billion notes due Jan. 14, 2016 priced at par to yield 10½%, according to a company announcement.

Deutsche Bank and HSBC were the bookrunners for the Rule 144A and Regulation S deal, which includes a change-of-control put at 101% with a ratings decline.

The notes also include a make-whole call until Jan. 14, 2014 and then are callable at 105.25. There is an equity clawback until Jan. 14, 2014.

Proceeds will be used for general corporate purposes and to finance new and existing projects.

Also from the Chinese real estate sector, Guangzhou, China-based Hopson Development Holdings Ltd. is on a roadshow in Asia and Europe via UBS for a planned issue of dollar-denominated notes, according to a company announcement.

Proceeds from the Regulation S transaction will be used for working capital and general corporate purposes.

Evergrande on roadshow

In another planned deal from Guangzhou, residential property developer Evergrande Real Estate Group Ltd. is on a roadshow this week in Asia and Europe for a dollar-settled issue of renminbi-denominated senior fixed-rate notes, according to a company filing.

Bank of America Merrill Lynch, Deutsche Bank, Citigroup and BOC International are the bookrunners for the Regulation S notes, which include a change-of-control put at 101%.

Proceeds will be used to repay some onshore bank borrowings, to finance existing and new property projects and for general corporate purposes.

This industry activity comes against the backdrop of potential weakness in China's property market, according to a report from RBC Capital Markets.

"There are serious tail-risks for China associated with keeping policy too loose for too long," the report said. "Overinvestment now could result in a serious pull-back in investment growth at some point in the near future, with the property market particularly vulnerable."

But given that the sovereign is expected to continue spending on infrastructure to support development of China's hinterland, investment growth should remain at solid levels, RBC said.

VEB, others plan notes

Monday also saw Vnesheconombank planning a roadshow from Wednesday to Friday for a possible issue of Swiss franc-denominated notes, a market source said.

Barclays Capital and BNP Paribas are the bookrunners for the deal.

Turkey-based financing company Akbank is considering an issue of dollar-denominated notes, a market source said.

And Kazakhstan's Halyk Bank is on a roadshow this week with Citigroup, Deutsche Bank and Halyk Finance for a possible issue of notes, according to a company announcement.

A presentation for prospective Kazakhstani investors will be held on Friday.

Eskom taps bookrunners

In other deal news, Johannesburg, South Africa-based power utility Eskom Holdings has mandated Barclays Capital, Bank of America Merrill Lynch and JPMorgan as the bookrunners for a benchmark-sized offering of dollar-denominated notes, a market source said.

A roadshow for the Rule 144A and Regulation S offering will start Tuesday and travel through the United States, Europe and London.

And Azerbaijan's Technikabank has mandated Commerzbank AG and HSBC for a roadshow in Asia and Europe starting Jan. 11, a market source said.

A dollar-denominated issue of notes may follow.

Abu Dhabi, Qatar trade well

In trading on Monday, Bahrain's 5½% 2020 notes ended the European session at 102 bid, 102.5 offered, after trading last week at 101.75 bid, 102.25 offered. Bahrain Mumtalakat Holding's 5% 2015s - which were at 100.62 bid, 101.02 offered last week - were seen at 101.37 bid, 101.87 offered before closing at 101.90 bid, 102.40 offered.

Abu Dhabi Islamic Bank's 3.745% 2015 notes were trading at 98.05 bid, 98.15 offered before finishing the day at 98.05 bid, 98.25 offered.

One trader said he was looking to buy $1.6 million of Bahrain's 2020s at 102.125 and $1.5 million of Dubai Water and Electricity Authority's 2015s at 107.30, as well as $1.5 million of Mumtalakat's 2015s at 102. He also wanted to pick up $1 million of Qatar-based QTel International's 2021s at 96.875 and $2 million of Dubai's 2020s at 96.75.

"I don't see tremendous value out there on many secondary names in the region," he said. "Abu Dhabi trades well, but at the tight end of the range. Qatar is holding well but there's paper around. Value remains in DEWA."

Qatar in focus

In looking closely at Qatar, the trader said he expects front-end Qatari names to be well supported.

"Yields north of 3% are appealing versus domestic deposit rates," he said. "Qatar just oozes cash. What this small island in the Gulf has managed to do with those gas reserves is stunning."

Most banks in the region seem fairly confident of their ability to source funds, an assumption that is of some concern to the trader, particularly if they are turning down good sources of funding while expecting even tighter spreads going forward.

"There remains a significant amount of bank paper coming due in the next 12 months, as five-year paper comes due from the issue frenzy we saw from the region in 2006 and 2007," he said.

Lebanon in demand

Lebanon, meanwhile, is seeing good demand, he said. The 6.2% 2022 bonds were bid above par earlier in the afternoon before finishing the day at 100.25 bid, 100.75 offered. "There's good interest on longer-dated paper," he said.

Egypt remains heavy, he said, with the 8¾% notes due 2011 finishing the European day at 103.75 bid, 104.50 offered and the 5¾% 2020 notes closing at 102.00 bid, 102.75 offered.

The trader favors "keeping the powder dry for the new issues," he said, "and also for some market-inspired correction and bouts of profit taking, which given the global backdrop seems likely at some stage."

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