Cash-starved Chinese property developers that were active in the US dollar market at the start of the year have now turned to the dim sum market amid improved prospects for renminbi appreciation. For these borrowers, the dim sum market offers attractive funding levels and also helps them avoid a currency mis-match.
This week, four developers — Lai Fung Holdings, Golden Wheel Tiandi, Kaisa and Future Land Development — tapped dim sum investors for funds. Mainland property developers have always faced constraints in raising funds onshore, so many take money off the table whenever they can.
This was reminiscient of January, when property companies stampeded the dollar market, overcrowding it and turning investor sentiment against them, as some bonds traded poorly in secondary.
“Chinese developers are taking advantage of the liquidity and attractive rates in the dim sum market,” said Ivan Chung, senior credit officer at Moody’s. “Many of them have issued US dollar bonds in January and that market is now overcrowded. The renminbi has also been appreciating since after Chinese New Year and recently hit a record high against the US dollar, so that is fuelling demand from investors.”
With such issuance, the dim sum market — once dominated by high-grade state-owned enterprises — has seen more high-yield bonds.
Lai Fung, the property development and investment arm of the Lai Sun Group in mainland China was the latest to tap investors on Thursday night. The company raised Rmb1.8 billion through its five-year dim sum bond, at the top end of the Rmb1.5 billion to Rmb1.8 billion size range.
The initial price talk was at the 7.25% area. The final price guidance was 6.875% to 7%, and the bonds priced at the tight end of the range. “The dim sum market has seen good demand,” said a source. “The dollar market has been quite volatile, so its good that Asian companies have other options.”
Elsewhere, China’s Golden Wheel Tiandi on Thursday night also raised Rmb600 million through its three-year dim sum bond, after attracting Rmb2.1 billion of orders. The expected deal size was Rm500 million to Rmb700 million. The initial guidance was 11.5% and this was revised to 11.25%, with the bonds pricing to yield 11.25%.
The distribution was skewed towards private banks, which were allocated 63%. Fund managers were allocated 31%, banks 5%, insurance and other investors 1%. Asian investors were allocated most of the deal. BOC International and HSBC were joint global coordinators. BNP Paribas and UBS were joint bookrunners.
On Monday, Kaisa Group had kicked off issuance with a Rmb1.8 billion three-year dim sum bond that attracted Rmb22 billion ($3.5 billion) worth of demand from over 170 accounts.
The mainland developer had already tapped the dollar market twice this year, so the dim sum market offered it diversification. The exuberant response to its deal encouraged other borrowers to tap the market.
Kaisa is rated B1 by Moody’s and B+ by Standard & Poor’s. The bonds priced to yield 6.875% and the proceeds went towards partially refinancing its 2010 US dollar bonds. Funds were allocated 73%, private banks 16%, banks 8% and companies and others 3%. Citi, Credit Suisse, HSBC and J.P. Morgan were the bookrunners.
Following shortly after Kaisa, Future Land Development, a developer in the Yangtze River Delta had also tapped the market with a Rmb1.5 billion three-year dim sum bond that paid a yield of 9.75%. The company is rated BB- by S&P and B+ by Fitch.
The deal attracted Rmb8 billion of orders and priced through the secondary level of its $200 million five-year bond issued in January 2013, that was trading at a yield of 10.29%. Bank of America Merrill Lynch, Deutsche Bank, BOC International, Citic Securities and Haitong International were the arrangers.