SOHO China’s Zhang Xin and Pan Shiyi turn to bonds
SOHO China, the Beijing-based real estate developer run by celebrity entrepreneur couple Pan Shiyi and Zhang Xin made headlines last week as they arranged a US$1 billion, dollar-denominated bond sale.
The Hong Kong-listed company announced the deal on Wednesday for $600 million of five -year notes that will pay 5.75% annually, and another $400 million in 10-year notes that will pay 7.125% annually. HSBC, Morgan Stanley and Standard Chartered Bank are joint global co-ordinators of the sale.
The company said that the debt, which is to be listed in Singapore will be used for general corporate purchases.
However, SOHO, which has been among the most aggressive of China’s developers in acquiring new commercial projects in recent years, may be looking for a way to prop up its short to medium term cash situation after switching to a buy and hold strategy earlier this year.
The company, which started out by selling residential units to individual investors, and then moved into commercial properties using a strata sales strategy of selling individual floors or other pieces of its buildings to smaller buyers, announced earlier this year that it would switch to a strategy of leasing out its buildings.
While the lease strategy may hold benefits to the company in the long run by giving it a more stable and reliable cash flow, it will also put pressure on the developer to come up with a new way to replace the quick cash turnover that it previously received from strata-sales of its properties.
Accordingly the company’s share price has fallen 7.7% since it announced the change in approach for its commercial real estate projects. With the equity markets failing to support the company’s buy and hold strategy, it appears that SOHO has found a willing audience for its message on the bond market.
With US interest rates still low and the Chinese yuan likely to continue to appreciate against the US dollar for the next several years, it seems that this bond sale is SOHO’s answer to that cash flow challenge.
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