China Resources Land makes debut in loan markets

China Resources Land has mandated Standard Chartered as the sole arranger for its loan market debut.

The China Resources Group is cashing in on the latest bout of red-chip fever to hit the loan markets. A number of red chips, such as Shenzhen Investments, CNPC, Cofco, Citic Pacific and Shanghai Industrial Investments have tapped the loan markets in the last few months.

For the China Resources Group itself, ABN AMRO launched a $70 million equivalent three-year yen loan for All Seasons Property Co., its Thai joint venture with M Thai Group. The All Seasons Property deal paid an all-in of 50bp over Libor. China Resources (Holdings) guaranteed the deal.

Now it is the turn of China Resources Land, one of the biggest property developers in Beijing. China Resources Land is listed in Hong Kong and is 48% owned by China Resources (Holdings). China Resources Land has mandated Standard Chartered as the sole arranger for its loan market debut. The $60 million three-year bullet deal was launched into general syndication earlier this week. General syndication is slated for close in three weeks.

The deal pays a margin of 48bp over Libor. Some observers believe the pricing is too tight for a property developer and that too from China. Foreign banks are said to be reluctant to participate in the deal on account of the tight pricing. Banks bidding for a mandate from China Resources (Holdings) expect to price its deal around 50bp over Libor. According to figures provided by Dealogic, China Resources (Holdings), last tapped the loan markets in September 1997 to raise $250 million through a five-year term loan at a margin of 40bp over Libor.

Others argue that the pricing for China Resources Land's deal is acceptable given that it is at a slight premium to the Cofco deal, which pays banks a participation fee of 42bp (all-in of 60bp) on the top level. Given that China Resources Land's deal is relatively small-sized it is likely to see more participation from PRC-based banks, though the markets would be interested to see what Standard Chartered's final take will be. The pricing also reflects the fact that the borrower is from the China Resources Group. There is an added Hong Kong element given that the company is listed in Hong Kong, although its core business is property development in Beijing.

However, the company has recently made moves to expand outside Beijing. In May, it signed its first major project in Shanghai's Puxi district where it will build mid-to-high end residential apartments on 60,230 square metres of land. The residential apartments are also being targeted at foreigners. The company has also signed an agreement with the city government of Chengdu, the capital of Sichuan province in south-central China, to build 5,000 flats in seven years.

Proceeds from the loan will go towards general corporate funding and refinancing of higher cost domestic currency debt raised in the last couple of years. The proceeds will also be utilized to fund the Shanghai project, which will enable the company to reduce the currency mismatch on the borrowing. The loan deal is being marketed on two levels. Banks committing $7 million or above receive all-in of 62bp, while those joining on the lower level with $4 million-$6 million receive all-in of 60bp.