Fatigue sets in for China property bonds

As Longfor Properties becomes the 13th Chinese property developer to tap the dollar bond market, fatigue has set in.
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Investors are losing interest in Chinese property
<div style="text-align: left;"> Investors are losing interest in Chinese property </div>

Fatigue has finally taken hold in the Chinese property sector, judging by the reception that recent bond deals have received from investors.

On Tuesday night, Longfor Properties tapped the market with a $500 million 10-year non-call deal, after attracting a book of $1.75 billion. The bonds were initially marketed at the 7% area, which was revised to 6.625% to 6.875%, with the bonds pricing at the mid-point at 6.75%.

Longfor is one of the better-regarded high-yield developers, but it is also the 13th Chinese property company to tap the bond market this year, and some fatigue has obviously set in. At this point, investors have turned more selective.

“As we move along, the new-issue concession has become less and less,” said Lim Swee Ching, credit analyst at Western Asset Management. “We are staying selective in evaluating deals in which to participate. I think it is healthy that we see some pushback from the market on some of the deals from the Chinese property sector.”

Longfor Properties’ deal offered a $0.25 private banking rebate. Asian investors were allocated 70%, European 29% and offshore US investors 1%. In secondary markets, Longfor Properties was quoted at 100.5 in secondary, half a point above reoffer. Citi, HSBC, Morgan Stanley and Standard Chartered were joint bookrunners.

On Monday, another Chinese property developer, China Aoyuan, also struggled, re-opening its existing $125 million 2017s and raising an additional $100 million. The company first tapped the market with a debut five-year non-call-three bond back in November last year, which was also a tough deal to close — books were left open for several days and investors requested further site visits.

The re-opening of that deal was marketed to investors on Monday, at the same time as China SCE Property and Central China Real Estate. Future Land Development also announced plans to tap the bond market on the same day.

The original plan was to raise $175 million, to bring the total issue size up to $300 million, but this proved difficult amid competing supply.

The price guidance was in the 12% area and the tap was priced to yield 12%, barely budging. Private banks were allocated 65% and asset managers 35%. Asian investors were allocated 79% and the remaining 21% was allocated to European investors. There was a $0.30 private banking rebate.

Citi and UBS were joint global coordinators and bookrunners. Bank of America Merrill Lynch was also a bookrunner.

On Monday, China SCE Property also closed a $150 million tap of its outstanding bonds. The bonds were quoted at 107, below the 108 reoffer. Deutsche Bank, HSBC and ICBC International were joint bookrunners. Central China Real Estate also closed a $200 million and its bonds were trading at 102. Late last week, Powerlong closed a $250 million bond.

More Chinese property borrowers are lining up. Greentown China announced plans to issue a dollar bond. Deutsche Bank, BOC International, Goldman Sachs, HSBC, ICBC Asia, Standard Chartered and UBS are joint bookrunners. The company will hold roadshows in Singapore today and Hong Kong on Friday with conference calls for European accounts.

Future Land Development concluded roadshows in Singapore and New York on Wednesday. Bank of America Merrill Lynch, Deutsche Bank, UBS and Haitong International are joint bookrunners.

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