20210722-招银国际-Jiayuan__Opening_up_a_new_and_lower_cost_funding_channel_3页_510kb

Jiayuan Credit Commentary Summary

Core Content

Jiayuan has recently issued USD100 million convertible bonds (CBs) with a maturity of 3.5 years and a puttable feature at 2.5 years. The coupon rate is 7%, resulting in a gross yield to put of 9.8%, which includes the put premium. The conversion price is HKD3.5, representing a 6.06% premium over the closing price on 21 July 2021. The CBs are structured with a high conversion parity of 92.6%, suggesting a strong likelihood of conversion into equity.

Main Points

• Credit Positive Impact: The CBs issue is considered credit positive due to the low conversion premium and the potential for equity conversion.
• Ownership Dilution: The chairman of Jiayuan currently holds 74.93% of the company's shares, just below the 75% cap to maintain a minimum free float of 25%. If the CBs are converted, his ownership will be diluted to 71.9%, which is seen as a strategic move to facilitate the conversion of his HKD3.4 billion CBs received from the Shandong asset injection.
• Equity Base Expansion: The CBs and potential future equity-related financing are expected to significantly increase Jiayuan's equity base, which is a positive factor for the company's credit profile.
• Bond Performance: JIAYUA bonds have remained relatively stable, showing resilience against market volatility. Recent buy-backs by Jiayuan, including USD5 million of JIAYUA 12.5% '23 and USD3 million of JIAYUA 11% '24, have provided some support to the bond prices.
• Outperformance: JIAYUAs have outperformed the market year-to-date (YTD), driven by an improving credit story, progress in refinancing, broadening of investor base, and the expansion of the equity base through equity-funded asset injections.
• Investment Recommendation: The CB placement reinforces the view that Jiayuan's credit story will continue to improve. The bonds are viewed as low-beta investments with a good carry (YTM/YTP of 10–14%).

Key Information

• CBs Details:

  • Issue amount: USD100 million
  • Maturity: 3.5 years
  • Puttable: 2.5 years
  • Coupon rate: 7%
  • Gross yield to put: 9.8%
  • Conversion price: HKD3.5
  • Conversion premium: 6.06%
  • Conversion parity: 92.6%

• Chairman's Ownership:

  • Current ownership: 74.93%
  • Post-conversion ownership: 71.9%
  • CBs held by chairman: Equivalent to 16% of equity base as of Dec 2020

• Equity and Funding:

  • Expected further equity and equity-related financing after the 90-day lock-up period
  • Asset injections are primarily equity-funded, contributing to the growth of the equity base

• Bond Performance:

  • JIAYUAs have been flat to 1pt lower over the past 2–3 weeks
  • Notable outperformers YTD
  • Buy-backs have provided support

• Preferred Bonds:

  • JIAYUA 12.5% '23 is favored due to its small premium over shorter-tenor bonds and better trading liquidity

Disclaimer and Disclosures

• The report is prepared for information purposes only and does not constitute investment advice.
• CMBIS may have investment banking relationships with the issuers mentioned.
• The report is not an offer or solicitation to buy or sell any securities.
• The information is subject to change without notice and may not be reproduced without prior written consent.
• The report is intended for specific recipients, including "major US institutional investors" in the U.S. and Accredited Investors in Singapore.
• There are risks involved in trading securities, and past performance is not indicative of future results.