Vincent Lo of Shui On is out looking for more cash
Following Poly Real Estate’s successful bond offering on April 16th, China’s real estate companies are heading back to the international bond markets for financing, with three large developers pricing securities last week and two more said to be preparing debt offerings.
According to a recent report in the South China Morning Post, Shui On Land and Country Garden Real Estate are preparing to float bonds on the international market, while China Chengtong Development, China Overseas Land and Yanlord Land all priced securities last week. The financing measures come as the country’s real estate developers struggle with falling prices and declining sales.
The efforts to secure new debt financing follow a brief hiatus from the market after some developer bonds failed to price in February, and the high profile collapse of Zhejiang Xingrun Real Estate in March raised concerns regarding the credit-worthiness of China’s property sector.
Shui On Enters Parade of Debt Sellers
Shui On Land, which has been struggling to shore up its balance sheet by selling equity and assets, is said to be marketing a two-tranche bond of “benchmark” size, in addition to a move to exchange the equivalent of US$1.44 billion in notes due in 2015 for new paper set to mature in 2018 and 2020.
State-run China Overseas Land and Investment priced a US$1 billion two-tranche bond on April 29th, and Shanghai-based residential developer Yanlord Land priced a S$400 million (US$319 million) three year security the same day.
On April 30th, China Chengtong Development Group priced the first ever dim sum bond to use an RMB-denominated standby letter of credit (SBLC). The three year deal priced on Wednesday night at 4% with a size of RMB 600 million ($96 million). State-run Agricultural Bank of China provided the SBLC via its Beijing branch.
Country Garden Holdings is said to be proposing an offshore debt offer of US$500 million or more, is sounding the market on an offshore offer, expected to be at least US$500 million.
Investors Buy Despite Credit Concerns
The successful pricing of this latest round of corporate bonds shows that investors still retain an appetite for China’s property bonds despite recent bad news in the market.
A report issued by credit agency Moody’s last week indicated “weakened credit trends, as leverage was up and interest coverage and margins were down in 2013” for the majority of the developers rated by the agency. After the collapse of Zhejiang Xingrun Moody’s downgraded the ratings for developers Zhong An Real Estate and Renhe Commercial Holdings – the first negative rating actions for its rated China property developers since September 2013.
The reason for investor receptiveness to the bonds by Poly, China Overseas Land and Yanlord are that these state-run companies all have investment level bond ratings, and are seen as having implicit backing by the government. By receiving backing from the Agricultural Bank, China Chengtong’s bonds are also seen as being close to investment grade.
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