Chinese Estates Owners Buy $1.1B of Evergrande Bonds

Chinese Estates Holding director Kimbee Chan Hoi-wan and members of her husband Joseph Lau’s family purchased a third of $3 billion in senior unsecured bonds issued by China Evergrande Group late last month, swelling the clan’s portfolio of the top-three mainland developer’s notes to $1.7 billion.

The family unsuccessfully attempted to purchase another $2 billion in Evergrande notes in addition to the $1.1 billion they acquired, according to sources cited by local media outlet Sing Tao Daily. Other investors in the debentures included Fidelity and Value Partners.

Yields on the newly issued notes will be higher than for the previous sets of bonds Evergrande issued in November and October of last year, since they will be offered at between 93 and 98 percent of their face value. Among this previous batch, a tranche with a 2020 maturity had a yield of 8.25 percent, that with a 2021 maturity a yield of 9.5 percent, and a third set with a 2022 stamp a yield of 10.5 percent.

Chan, whose sister was appointed to Chinese Estates’ board after Lau was charged with bribery and money laundering in 2012, and who joined the board herself in 2017, has remained silent on the purchase. Lau was eventually convicted of the charges in Macau and remains a fugtive thanks to Hong Kong’s lack of an extradition treaty with its Greater Bay area neighbour.

Globally, the bond sale was coordinated by CEB International, Credit Suisse, China CITIC Bank International and UBS. The notes are expected to be assigned a rating of B by S&P, B+ by Fitch and B2 by Moody’s.

Bonds Among Friends

The bond purchase intensifies Evergrande’s liaison with Chinese Estates Holdings, which ranks as the mainland developer’s second-largest shareholder with a 6.54 percent stake and Chan, who is the company’s fourth largest shareholder with a 2.41 percent stake.

This is not the first time the companies’ dealings have hit the headlines. In 2015, Chinese Estates sold the Mass Mutual Tower in Wan Chai to Evergrande Group for $1.6 billion (HK$12.5 billion), breaking the deal record for office buildings in Hong Kong at that time. Chinese Estates made a 10 percent upfront payment on the building and agreed to settle the balance via six annual installments.

JP Morgan criticized the deal, which provided a mere 1.7 percent yield, as overpriced, and stated in a note to investors that it was “another example of immature capital management” by Evergrande.

The total value of transactions between the two companies reached $2.6 billion that year, despite warnings that Evergrande’s credit would be tarnished.

Raising Eyebrows

The purchase by Lau’s clan is only the latest in a row of “unusual” activities linked to Evergrande’s dollar-denominated bonds, with the developer having issued a total of $5.8 billion in offshore notes since October of last year. The bonds have raised eyebrows due to their at times double-digit yields, as well as for adding to Evergrande’s RMB 671 billion debt pile.

Last year, Evergrande chairman Xu Jiayin acquired 55 percent of the $1.8 billion in bonds the company issued in October, which carried yields of up to 13.75 percent. Bond values plunged to 78-82 percent of their face value after the announcement, as concerns over the firm’s leverage grew.

In a call with Bloomberg, Evergrande said the purchase by Xu, who has garnered $3.6 billion in dividends from the company since 2009, represented shareholders’ support for the developer.

Iris Poon contributed research to this story.