Yang Guoqiang of Country Garden has won approval for RMB 10B in ABS
Guangzhou-based developer Country Garden has successfully sold off RMB 1.7 billion ($270 million) in securities backed by cashflows from its rental housing initiative, according to a report in the official Shanghai Securities News on Friday.
The sale, which has been announced as the first tranche of RMB 10 billion ($1.6 billion) worth of securities backed by income from Country Garden’s rental housing projects, was sold as a near-REIT on the Shenzhen Exchange through a joint effort by the developer and Beijing-based China United Fund (中联财富国际投资基金管理（北京）有限公司).
Country Garden’s public fund-raising effort comes as China’s financial regulators encourage creation of asset-backed securities as a way of supporting the government’s drive to increase stock of rental housing.
Country Garden Offers Investors 5.75% Yield
Country Garden, which was China’s biggest home builder by contracted sales in 2017, sold RMB 1.55 billion of “Zhonglian Qianhai Kaiyuan – Country Garden Rental Housing No. 1 Asset Support Special Project” as senior debt, with the product offering a yield of 5.75 percent. The company headed by peasant turned billionaire Yang Guoqiang won approval in February of this year to launch RMB 10 billion ($1.6 billion) worth of asset-backed securities linked to rental apartments, and plans to issue additional tranches in the coming months.
Local media on the mainland hailed the sale as a victory for the government’s affordable housing drive, and reported that major investors including national-level banks, local banks, brokerages and insurers had been significant subscribers to the offering.
The property assets tied to this debt instrument are Beijing Jiuhua Villa Z10, Beijing Jiuhua Zhuang 15 District, Shanghai Nanxiang Yuhong, Xiamen Yunxiaoli and Xiamen International Coast Properties, according to the local media report. The properties are managed and marketed by Country Garden’s long-term rental subsidiary Big+ (BIG+碧家国际社区).
Country Garden, which currently has at least 10 rental housing projects underway across Beijing, Guangzhou, Shenzhen, Xiamen and Wuhan, has said that it plans to build one million rental homes in the next three years.
China Continues Push for Rental Housing
Country Garden plans to build one million rental homes within three years
This latest listed security offering comes as China continues to induce developers to build more rental homes and provides incentives to investors to direct cash to the sector.
“(We) encourage companies involved in the rental housing business to conduct asset securitization according to their operating conditions and based on their own financial needs,” the China Securities Regulatory Commission (CSRC) said in a statement on its website last week. The financial regulator says that it will set up a “green channel” to expedite the creation of more securities backed by rental housing assets, according to a report in Reuters.
Developers Compete to Cash in on ABS
Country Garden has proclaimed its RMB 10 billion funding drive as the nation’s largest rental housing finance scheme. However, Shenzhen-based China Merchants Group announced in December that it had received approval from authorities to issue up to RMB 20 billion in asset backed securities backed by income from a pair of rental housing projects in Shenzhen’s Shekou area.
Other developers are taking similar approaches, with state-owned Poly Real Estate having secured its own approval from the Shenzhen stock exchange to offer asset-backed securities (ABS) linked to rental homes last October to raise a total of RMB 5 billion ($753 million).
In the same month, Beijing-based China Young Professionals Apartments (CYPA) was approved to issue RMB 270 million ($40.77 million) worth of securities based on rental income from the apartments it operates in first-tier cities.
Interesting coupon at 5.75% – no way the cap rates support this sort of finance.
There would have to be some credit support in there and a reasonable ICR from the pool of assets.
In a statement last year, China Vanke indicated that it was earning 2-3 percent on its rental housing projects, but hoped for better yields in the future. Other developers have spoken of 5-6 percent returns. I also found it interesting that China Merchants had been approved to issue RMB 20 bil in debt backed by income from a pair of rental projects. Must be very large projects indeed.