Country Garden $750 million bond adds to flurry of property issues

China’s seventh largest property developer is the fourth mainland real estate group to tap global markets in September.
As real estate prices continue to soar, most Chinese developers are again boosting land purchases, meaning they are likely to tap offshore markets.
As real estate prices continue to soar, most Chinese developers are again boosting land purchases, meaning they are likely to tap offshore markets.

Country Garden, China’s seventh largest property developer, raised a $750 million seven-and-a-half year high-yield bond on Wednesday night, the latest in a flurry of mainland property companies to tap the market this month.

The deal - which has a yield of 7.25% and a callable option on four years - priced tightly within its existing curve, falling comfortably between its 2018 and 2023 notes, which are trading at 111.375 and 97.375 respectively in secondary markets. The latest bond is currently trading at 99.875 to par, the sources added.

“It’s bang on where it priced, it’s right in the money,” said a source close to the deal. “To put out such a large transaction – an intra-day execution – is a great achievement and the issuer is extremely well-known given that it has done large sized transactions before.”

The developer’s note has three call options – the first being in October 2017, followed by October 2018 and October 2019, offering premium prices of 103.625, 101.8125 and 100 respectively. Under a standard high-yield structure, the deal also includes an equity clawback – benefits that are distributed and then taken back as a result of special circumstances – of up to 35% at 107.25 of par until October 2016.

Country Garden is the fourth mainland real estate company to tap global markets this month, and is a positive  sign compared to July and August, which only saw one deal respectively, according to Dealogic data. But this is not the end of China property companies’ appetite for global bonds.

Modern Land China, a developer that builds residential and commercial projects with energy-saving architecture, has hired banks to arrange a series of fixed-income investor meetings this week. A US dollar-denominated Reg S senior notes offering could follow subject to market conditions, according to sources.

The roadshow – organised by Bank of China International (BOCI), Citi and Industrial and Commercial Bank of China (ICBC) – in Hong Kong and Singapore started Tuesday.

Other Chinese developers that have tapped international markets this month include CIFI Holdings, which issued a $234 million four-and-a-half year bond at a yield of 12.25% on September 11, and Greentown China, which sold a $300 million five-and-a-half year note at a yield of 8% on September 16. Additionally, Wuzhou International raised a $99 million five-year paper at 13.75% on September 18.

BOCI, Goldman Sachs, HSBC, ICBC International and JPMorgan are the sale managers for Country Garden’s bond.

China’s buoyant property market

As real estate prices continue to soar, most Chinese developers are again boosting land purchases, meaning they are likely to tap offshore markets. A recent E-House China survey showed property prices in 288 cities rose 1.1% month-on-month in July and 11% year-on-year.

“Most sizable property developers in China have ongoing financing needs because they are expanding quite rapidly, especially this year for buying land when the property market seems to be in a better condition,” said Felix Lam, head of China property research at Daiwa. “In terms of policy, we see low risk of new tightening measures.”

Chinese authorities stopped approving developers’ onshore fundraising exercises in 2010 as part of their effort to control rising property prices. Their stance has softened as economic growth dropped to below 8%.

As of year-to-date, Chinese developers had raised more than $13.3 billion from sales of US dollar bonds. In the past two weeks alone – before Country Garden came to the market – three companies from the sector sold $633 million in dollar debt, according to Dealogic data.

“The market has improved a lot since the more difficult period over the summer and a wider range of issuers can access the markets at good levels,” said a source close to the Country Garden deal. “Also, issuers are aware that Treasury rates are on their way up – it’s just a matter of time. People are now moving in to lock-in what they still perceive as attractive costs.”

The yield on the benchmark 10-year note fell 15bp last week to 2.74% as the Federal Reserve (Fed) decided not to trim its $85 billion monthly bond purchases. Yields touched 3% last month, up from this year’s low of 1.61% in May, as Fed Chairman Ben Bernanke said the central bank would consider reducing or ending its stimulus.


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