Greentown taps dim sum arbitrage opportunity

Greentown China adds to the widening high-yield dim sum bond universe with a Rmb2.5 billion debut deal.
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Chinese property developers are starting to take advantage of dim sum issuance
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<div style="text-align: left;"> Chinese property developers are starting to take advantage of dim sum issuance </div>

Greentown China tapped the market on Monday night with a Rmb2.5 billion ($405 million) debut three-year dim sum bond, becoming the latest China property company to take advantage of liquidity in the dim sum bond market.

The deal offered cost savings compared to the dollar market and Greentown attracted an order book in excess of Rmb16 billion ($2.6 billion), suggesting there was still plenty of unfulfilled demand that other borrowers could potentially tap.

“There’s plenty of unsatisfied demand for offshore renminbi bonds, so we could see more issuers come to market,” says one source.

The dim sum market has been widening to include more high-yield borrowers, particularly Chinese property developers. This has been underpinned by the hunt for yield, as well as expectations that the offshore renminbi will appreciate. According to Dealogic, the total volume of sub-investment grade dim sum bonds has hit $2.1 billion year-to-date, which is more than the $1.2 billion issued during the whole of 2012.

The sizes of dim sum bonds are also approaching that of US dollar bonds. Greentown’s latest renminbi bond was roughly the same size as its $400 million five-year dollar bond that priced in January.

For many Chinese property developers, borrowing in dim sums now makes sense from a cost perspective. Greentown China, which is rated B2 by Moody’s and B by Standard & Poor’s, priced its three-year dim sum bond to yield 5.625%, at the final guidance and 37.5bp inside the initial price whisper at the 6% area. Its outstanding US dollar bonds maturing 2018 were yielding 6.33% before the deal announcement. Greentown was helped by the fact that Wharf Holdings holds a 24.6% stake in Greentown, and although it has breached covenants in the past, it is now seen as a turnaround story.

“For Greentown, it looks like a great deal,” says one rival banker. “A lot of investors are looking at Greentown as a Wharf credit now and it offers yield.”

Hong Kong and China investors were allocated 83%, Singapore and other investors 17%. Fund managers were allocated 50%, companies 20%, private banks 15% and banks 15%.

BOCI, Deutsche Bank, HSBC, ICBC (Asia) and Standard Chartered were joint bookrunners.

Although it has been widening in terms of credit spectrum, the dim sum market is still constrained in terms of tenors. Corporate perpetuals, for example, have yet to be sold in the offshore renminbi bond market. There are a handful of long bonds from the Ministry of Finance but otherwise, long-dated bonds are still rare as many investors are looking at the dim sum market as a currency play — and typically have a three- to five-year view.

Some of the traditional buyers of long bonds such as the pension funds and insurance companies are also not active in the dim sum bond market. “Insurance companies do not write policies in offshore renminbi, nor do we have pension savings in offshore renminbi, so there is no real demand for ultra-long-dated dim sum bonds,” says one source.

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