China’s third-largest property developer reopened the international market for Chinese real estate bonds last week with a $500 million bond issue, after the mainland’s real estate firms had fled the markets following the high profile collapse of a Ningbo developer last month.
State-owned Poly Real Estate successfully priced its five-year dollar-denominated offshore bond on April 16th. The Reg S deal priced at 99.415 percent, with a coupon of 5.25 percent to offer a yield of 5.385 percent.
This latest issue was the second time that Poly had gone to the international bond markets for funding after debuting on the overseas credit markets in July last year.
Only announced on April 14th, Poly was able to bring the new notes to market quickly, and received a BBB+ rating from ratings agency Fitch on the 15th.
China Real Estate Returns After March Developer Incident
After a surge of bond sales that saw international markets absorb US$5 billion of debt from Chinese real estate companies in the first two months of this year, the country’s property developers shunned the bond markets following the collapse of Zhejiang Xingrun Real Estate in March. The Ningbo developer’s inability to repay RMB3.5 billion in debts raised widespread concern regarding the risks of China’s property industry.
Even news stories this week that another developer, Nanjing Fudi Property Developing Co, had failed to make payment on RMB 105.4 million debt does not seem to have scared investors away from the Poly issue.
Bonds Backed by State-Owned Parent
The bonds, issued through Poly Real Estate Finance, are guaranteed by Hengli (Hong Kong) Real Estate, a 100 percent-owned subsidiary of Poly Real Estate Group Company. In addition to the guarantee, the bonds are supported by a deed of equity interest purchase undertaking and a keepwell deed between Poly Real Estate, Hengli and the bond trustee.
Poly’s state-owned conglomerate parent, China Poly Group Corporation, is also providing support through a keepwell deed in favour of Poly Real Estate and Hengli making many investors see the chance of default on these bonds as negligible.
In terms of geographical distribution, 95 percent of the bonds were sold in Asia and 5 percent in Europe. Fund managers were the biggest buyers of the paper with 42 percent, followed by banks with 30 percent, insurance companies 13 percent, private banks 13 percent and corporates 2 percent.
Poly Real Estate Group Co., Ltd. (600048.SH, 保利地产) booked operating revenues of RMB 92.36 billion and a net profit of RMB 10.75 billion last year according to a January report from the company.