(FUTLAN, Caa1neg/Bneg/-)
New Issue: $TBA 3NCNP2
Tender: $ 7/25 and $10/25 notes
IPT: 13.25% area
FV: 12.85%
Seazen has come to the market to finance the tender of its $ 7/25 and 10/25 notes with a new $TBD 3NCNP2 at an IPT of 13.25% area. In terms of fair value we compare the proposed deal to the existing Seazen dollar bonds, notably from wholly owned subsidiary, New Metro Global (Caa2neg/-/-), as well as other low rated peers (Vanke, Longfor).
The existing New Metro Global $4.125 5/26 is currently yielding around 12.75%, we think the curve is worth perhaps another 10bp for a 1 year extension. The sector itself is supported, as evidenced by ongoing state back support for China Vanke from Shenzhen Metro Group, and the general expectation that the Chinese government would likely step in if needed.
China Vanke, despite similar ratings, has substantially more debt outstanding and I would expect Seazen bonds to trade inside. Indeed, Bloomberg reports FY2024 debt at China Vanke of RMB382bn compared to RMB59b at Seazen. The most recent data for China Vanke, indicated a cash ratio at end Q1 of only 0.5x, with a CNY85bn shortfall, which implies ongoing outside financial support is required.
We therefore see fair value around 12.85%. In terms of book building, we understand books are currently over $500m.
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