Shangri-La announces 5-year senior unsecured bond at 4.40% FPG

Shangri-La Hotel Limited (“SLH”) is a wholly-owned subsidiary of Shangri-La Asia Limited (“Shangri-La”), an investment holding company focusing on real estate. SLH engages in the development, ownership, and operation of hotel properties, and is known for its range of luxury hotels primarily across Asia-Pacific.

SLH announced that it is intending to issue a 5-year senior unsecured bond at a final price guidance (“FPG”) of 4.40%. The bond will be issued on 1 August 2023, and will have a maturity date of 1 August 2028. The issuer is unrated, and the bond is expected to be unrated as well. The proceeds of the issuance will be used for the Group’s general corporate purposes.

For the financial year ended 31 Dec 2022 (“FY22”), Shangri-La benefited significantly from the post-COVID reopening in Asia. Revenues climbed +17.8% year-on-year (“YoY”) to USD 1.46b. EBITDA climbed 31.3% YoY to 174.4m, while effective share of EBITDA climbed +5.6% YoY to USD 441.6m. Net income remained negative – partly due to an exceptional FX loss of USD 110.3m from FX depreciation - but nonetheless narrowed significantly by 45.5% to USD 158.5m on the back of strong revenue and EBITDA growth highlighted previously.

Shangri-La’s credit profile remains relatively solid. Operating cash flows turned positive in FY22, while its cash position (FY21: USD 746m / FY22: USD 753m) and net debt levels also remained relatively stable (FY21: USD 4,803m / FY22: USD 4,846m). We also think its debt load remains manageable for now, with a fairly light debt maturity schedule – just about one-third of its debt due by end-2024. Its interest coverage ratio also remained stable at 2.0X in FY22 (FY21: 2.0X).

Looking ahead, investors can expect Shangri-La’s revenues and earnings to continue improving from FY22. Mainland China was a drag on FY22 performance, due to the zero-COVID lockdowns which ended only in late 2022. Management has guided for further tailwinds arising from a China reopening in FY23, which could have sizeable positive effects on the Mainland China, Hong Kong, and Singapore markets (totalling about 71% of effective share of EBITDA).

For a full credit update on Shangri-La, please refer to our latest article on SLHSP here (Idea of the Week: A suite deal in Shangri-La’s bonds).

We first compare this new issue to SLH’s existing bonds (Table 1). SLH currently has two outstanding bonds: SLHSP 4.500% 12Nov2025 Corp (SGD) yielding 4.232%, and SLHSP 3.500% 29Jan2030 Corp (SGD) yielding 4.328%. We previously recommended SLH’s 2025 bond - this new issue offers a slight yield pick-up (16.8 basis points [“bps”]) over our recommendation for additional duration risks due to its longer maturity (by about 2.7 years).

We also look at bonds with similar maturities by its hotel issuer peer Hotel Properties Limited (“HPL”). HPL has two bonds maturing in 2028: HPLSP 5.250% 09Mar2028 Corp (SGD) yielding 7.030%, and HPLSP 3.750% 31May2028 Corp (SGD) yielding 6.479%, offering significantly more yield pick-up for the additional maturity/duration risks over our recommended 2025 SLH bond. Following our comparisons with existing bonds from SLH as well as HPL, we believe this new issue looks fairly priced at its FPG of 4.40%.

Table 1: Existing bonds by SLH and HPL

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) and the analyst who produced this report hold a NIL position in the abovementioned securities.

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