Country Garden and Longfor Raise $1.7B in Offshore Bonds

Country Garden, China’s biggest developer by contracted sales, announced on Tuesday it would raise a combined $850 million through the issue of senior notes in two tranches. The move came just one day after fellow top-ten developer Longfor Properties announced it would raise $800 million with its own two-tranche offering of senior notes.

The debt issuances by the Hong Kong-listed companies form part of a surge of offshore bond sales in the first two weeks of the year, with at least four major Chinese developers revealing plans to raise a combined total of $2.6 billion. Mainland developers have been returning to the offshore bond market in recent months as they face more regulatory scrutiny and a credit squeeze at home.

The offshore deals also come ahead of a wave of debt maturation, which is expected to trigger a major refinancing drive. A total of $10 billion in offshore bonds and $35 billion in onshore bonds are coming due in 2018, according to a report last year by S&P Global Ratings. Moody’s, another credits rating firm, said that 75 percent of its rated Chinese developers will have bonds maturing this year.

Country Garden’s Leverage Expected to Improve

Guangdong-based Country Garden priced a $250 million, 5-year tranche at a 4.75 percent coupon and a $600 million, 7-year tranche at a 5.125 percent coupon, according to a filing with the Hong Kong stock exchange. The developer said it intends to use the proceeds for early redemption of senior notes due in 2023 and general working capital purposes.

“The proposed notes issuance will not materially affect Country Garden’s financial metrics, because the majority of the proceeds will be used to refinance the company’s existing debt,” commented Franco Leung, Vice President and Senior Credit Officer at Moody’s, in a research note.

Moody’s expects the developer’s debt leverage will improve to 110 percent to 115 percent over the next 12-18 months, from 93 percent as of June 30, 2017. The new notes issuance will also improve the company’s liquidity and lengthen its debt maturity profile, the ratings firm added.

The builder had RMB 120.1 billion ($18.4 billion) of cash on hand as of June 30, which covered 254 percent of its short-term debt as of that date, the company’s filing indicates.

Stable Outlook Seen for Longfor

Beijing-headquartered Longfor priced a $300 million, 5.25-year tranche of its offering at a fixed annual coupon of 3.9 percent, and a $500 million, 10-year tranche at a 4.5 percent coupon, a stock exchange filing by the company reveals. The proceeds are intended to be used to refinance debt, the company said.

Following the issuance, Longfor’s revenue to adjusted debt ratio is expected to hover at 94 to 96 percent over the next 12 to 18 months, according to credits rating firm Moody’s. “The proposed bond issuance, if completed, will have limited impact on Longfor’s credit metrics, because the proceeds will be used mainly to refinance the company’s existing debt,” said Stephanie Lau, Vice President and Senior Analyst at Moody’s in a note.