Kaisa paying up to join year-end bond financing rush

Unfazed by trade war fears, the Shenzhen property developer and recent defaulter raised $300 million from a US dollar one-year bond. It is arguably the year's priciest Asian high-yield issue.

Kaisa Group, the Chinese property developer that survived a near-knockout in 2015 when it defaulted on its offshore bonds, has joined the end-year dollar-bond rush as would-be high-yield issuers brave bearish investor sentiment and nagging worries about rising borrowing costs. 

Looking to secure short-term funding, the Shenzhen-based homebuilder launched a 365-day bullet bond on Tuesday, marking its return to international bond markets nearly 18 months after its $3.4 billion four-tranche issue and exchange offering.

That was after creditors had granted Kaisa a stay of execution by waiving interest payments in favour of debt extensions without ever having to take a haircut.  

According to final terms released on Wednesday, Kaisa has raised $300 million from the new issue – fairly in line with other property developers that had issued bonds this month.

Hong Kong-listed Kaisa is the third Chinese real estate developer to seek offshore debt funding in the last two weeks, after Sunac’s $350 million tap on its 2020s on November 30 and Logan Property’s $370 million two-year bond sale last Friday.

While the rush for year-end financing says a lot about the needs of developers to refinance their balance sheets, it also shows there is still demand for high-yield bonds even if some bond funds have already closed for the year.

In any case, Kaisa has got bond traders stunned because the new Reg S deal was issued with an indicative 13.5% yield, with price guidance in “the 12% area” and an extra 1.5% backend yield at maturity. 

PRICEY

On paper Kaisa’s proposed new issue would be the third-highest yielding note issued this year after China Properties’ 2021 bond and Evergrande’s 2023 bond, which were both printed in October with yields of 15% and 13.75%, respectively.

But both those issues have significantly longer maturities, making Kaisa’s one-year new deal look distinctly pricey.

What that suggests is that the unrated group is desperate to tap offshore money since it is highly likely that overall borrowing costs will continue to surge in the first half next year as rising US interest rates and geopolitical uncertainties put pressure on bond prices and lift yields.

As one head of China debt capital markets, who declined to be named, put it to FinanceAsia: “Corporate issuers will have to [issue new deals] whenever possible because everyone knows it gets harder entering into 2019 when sentiment is likely to further deteriorate.”

That said, Kaisa is catching a slightly better window for its new issue after a number of comparable high-yield names such as HNA Group and Gome saw their bonds tick up over 1% last week in anticipation of a truce in the China-US trade spat.

The controversy surrounding the arrest in Canada and possible US extradition of Huawei's chief financial officer has since dampened sentiment across Asian investment grade credit markets, but the high-yield segment has so far not been as affected, traders report.

To an extent, Kaisa is being forced to pay such high borrowing costs because its outstanding dollar bonds are trading at highly distressed levels.

Its outstanding non-call 2020s were guided at 84.2 to yield 19.65%; its non-call 2021s were trading at 77.7 to yield 19.57%; while its 2022s (callable 2020) were indicated at 71.1 to yield 20.23% during early trading hours on Tuesday.

Still, the fairly solid after-market support seen for other recent high-yield deals could help Kaisa to secure decent demand with its new issue. China Properties’ 2021s, for example, were indicated at around 99.6 while Evergrande’s 2023s were trading at 137 basis points above par.

The developer said it will use the proceeds of its new one-year offering to refinance existing debt.

Sole global coordinator of Kaisa’s bond offering is Citic Bank.

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