High-yield bond issuances tipped to surge in 2017

Xinhu (BVI) Holding Company Limited’s offering of US$700 million in guaranteed senior notes marked the largest debut high-yield bond issuance by a PRC company since January 2013, and the process required expertise, resources and commitment, the legal counsel involved said. Xinhu (BVI) Holding Company Limited’s offering of US$700 million in guaranteed senior notes marked the largest debut high-yield bond issuance by a PRC company since January 2013, and the process required expertise, resources and commitment, the legal counsel involved said.

Zhou Hao, a Hong Kong-based partner at King & Wood Mallesons (KWM), told China Business Law Journal the process was a big challenge for the firm. “Firstly, it is widely known in the market that a US law-style high yield covenant package is very complicated,” he said. “A typical summary of the covenant package included in the offering circular will be more than 150 pages long. It takes years for a lawyer to build up sufficient knowhow and experience to grasp this technology.”

Secondly, said Zhou, it takes the issuer’s counsel a tremendous amount of time to educate the client on everything from the basics to tailoring the covenants based on specific business needs in first-time issuances, although this process should get easier in repeat issuances.

“Thirdly, most debut issuances are by A-share listed companies whose management team barely speak much English,” he said. “The covenants are written in legal English, which is difficult even for English native speakers to comprehend. The first real PRC high-yield bond was issued around 2005. Lawyers who have continuously practiced in this area here in Asia for more than 10 years number less than 10, among whom only three are native Mandarin speakers.”