Mall Developer SM Raises $350M as Bond Demand Recovers

Although China’s residential real estate markets are continuing to slow this month, debt investors seem to be taking a more positive attitude as mall developer SM Investments successfully raised $350 million through a bond sale.

According to stories in the Philippine media, where SM is based, the company on Wednesday sold $350 million worth of 10-year bonds with an annual yield of 4.875 percent, its fourth dollar-denominated bond issue in five years.

Although the company said on Tuesday only that it was raising the money for capital requirements and to refinance debt, earlier statements from the company, which is controlled by the Philippines richest man, Henry Sy, had indicated that financing for its ambitious China expansion plans played a major role in its fundraising drive.

Speaking to the press in late March, the CFO of the mall developer’s SM Prime unit said that it was planning to raise around $740 million of debt financing this year through a mix of Philippine peso and US dollar borrowings. At the time Lim indicated that the proceeds of the debt drive were intended to support development of more malls in China as well as in the Philippines.

SM’s bond sale this week came as bond yields have slid to the lowest premium in more than 17 months, as investors apparently grow accustomed to the new levels of risk in China and the rest of the region.

According to a story in Bloomberg citing trader prices and data provider CMA, SM’s sale comes as estimates of bond risk in Asia fell 1.5 basis points to 105.5 this week, headed for its lowest close since last May.

SM Borrowing to Complete China Projects

While not explicitly stated by the company, one of the reasons SM is searching for financial support is to bring to completion its megamall project in Tianjin, one of China’s most overbuilt cities.

In March 2012 SM began construction on SM Tianjin Shopping Center a mall in Tianjin Binhai New Area which is slated to be larger than 74 football fields. During his March comments on the company’s capital needs, Lim indicated that more funds were required for the giant retail centre.

“We’ll still need more funding for the construction of Tianjin which we’ll open next year,” Lim said. At the groundbreaking in 2012 SM officials indicated that the project would be finished during 2013.