Country Garden returns but bond raises questions

The property firm returns to the dollar bond market this week, pulling off a deal it was forced to abandon in November. But unlike the last attempt, the company's latest bond sells under the radar.

Chinese property company Country Garden raised $350 million from a 10-year bond on Wednesday evening, structuring the deal with call and put options after five years and paying a coupon of 5.625%.

The company had attempted the same structure in the middle of November, raising eyebrows among investors and analysts with the relatively unusual addition of the put options. But the deal got a tepid response, thanks in part to the risk aversion that followed the election of Donald Trump, and Country Garden promptly backed away.

Asia’s credit markets have calmed down since then, allowing a raft of Chinese issuers to sell bonds — albeit with often bloated new issue premiums. As a result, Country Garden returned to the market this week — and proved able to get a deal away without changing the structure.

Some investors questioned whether the deal was a “real bond”. An investor told FinanceAsia that he thought it was “a private club deal organised by the lead banks, and institutional investors like us [were] not invited during the bookbuilding process”. An executive at a rival Chinese property company said he believed it was a “private deal with friends and family”.

It was certainly clear that a large chunk of the bond was bought by one of the bookrunners. Huarong International issued a statement on the Hong Kong stock exchange on Thursday, telling investors it had bought $80 million of the deal.

It is common for Chinese issuers to rely at least in part on so-called ‘friends and family’ investors — often banks and corporations the issuer has a pre-existing relationship with. But most deals do have some institutional demand through an open bookbuilding, which market participants suggested was not the case here.

A banker close to the deal said that several anchor investors had asked about sponsoring a deal in the wake of the bond being pulled in November. The desire to give those anchors a strong allocation meant there was little need for a wider bookbuild, he said — arguing that in the wake of “dozens” of cancelled deals in recent weeks, Country Garden’s bond was a clear success. 

Huarong said it paid for the bonds from cash on-balance sheet, and argued the purchase made sense from the point of view of its “development strategy” and that the subscription allowed the group to “optimise its investment portfolio and diversify its investment risks”.

Huarong also stressed that the bond would give it a stable source of income. The firm will earn $4.5 million a year from the holding.

The bond was not the only fund-raising pulled off by Country Garden on Wednesday. The property company released a statement on the Hong Kong stock exchange saying it had secured a dual-tranche term loan worth around $1.5 billion.

The four-year loan came with change-of-control clauses ensuring Yeung Kwok Keung and Yang Huiyan, the father-and-daughter owners of the company, remain the largest shareholders, continue to own more than 40%, and more broadly retain control.

Goldman Sachs and JP Morgan were the global coordinators of the bond. BNP Paribas, BOCI, HSBC and Huarong Financial were joint bookrunners and joint lead managers.

Huarong had a busy day on Wednesday, also subscribing to $87 million of an alternative tier one bond sold by China Minsheng Bank. The lender became the latest smaller Chinese lender to tap the market after a spate of issuance from the country’s biggest banks.

The bookrunners approached investors with price guidance in “the 5.25% area” for the $1.439 billion perpetual non-call five year deal, before pricing it at par with a 4.95% coupon.

The international and Hong Kong units of China Merchants Bank, Goldman Sachs, ICBC International and UBS were the global coordinators of the bond. ABC International, Barclays, BOCOM International, China Everbright Securities (HK), CICC HK Securities, Haitong International, Huarong Financial, SPDB International and Zhongtai International were joint bookrunners and joint lead managers.

Country Garden officials did not respond to requests for comment.


Update: This story has been updated to reflect the comments of a banker close to the deal.

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