Zhuhai Huafa sells $235m offshore renminbi bond

The Chinese real estate developer raises Rmb1.5 billion via a three-year note, offering a coupon rate of 5.25%.

Zhuhai Huafa, a real estate developer in the city of Zhuhai in Guangdong province, returned to the offshore renminbi bond market on Wednesday, raising Rmb1.5 billion ($235 million) through the sale of another three-year note.

The bond was sold with a coupon rate of 5.25%, unchanged from initial price guidance, after drawing Rmb2.5 billion-worth of orders, according to two people familiar with the transaction.

“We feel happy about the final results after marketing the deal for three months,” said a Hong Kong-based banker familiar with the deal, describing the final size of the order book as better than expected, given Zhuhai Huafa's credit profile and relatively short fund-raising history.

“Without a standby letter of credit from a major bank, the bond was priced at a market-friendly level,” he told FinanceAsia.

The state-backed company previously sold a Rmb850 million three-year bond in June 2014 via a credit-enhanced facility, offering a coupon of just 4.25% at that time thanks to an irrevocable standby letter of credit provided by Agricultural Bank of China.

Zhuhai Huafa -- the principal developer of the Shizimen central business district (in Hengqing Island) near Macau -- plans to use the new proceeds to fund some of its non-mainland Chinese projects in accordance with regulatory requirements, which preclude the use of offshore renminbi funding for domestic investment.

Chinese real estate firms have in any case been able to raise funds cheaply this year via domestic bond markets, with the tacit approval of policymakers as monetary conditions have eased. The Chinese central bank in October cut interest rates for the sixth time in a year.

That was reflected in the Zhuhai Huafa deal.

“The deal captured lots of interests from overseas investors, who return to offshore market as yields on domestic bonds fall,” said a second banker in Hong Kong  familiar with the deal. “Offshore institutional money and banks are the major buyers of the Zhuhai Huafa’s 2018 bond.”

Credit Suisse, ABC, Industrial and Commercial Bank of China, and Bank of China are the joint global coordinators of the transaction.

Renminbi ripples

Established in 1980, Zhuhai now controls three listed companies in Shanghai, Shenzhen, and Hong Kong. Its total assets were Rmb56.4 billion in June 2013, the last available figure on its website.

It engages in city planning, property development, and financial investment. For the five-year period to 2018, it plans to expand its total assets from Rmb60 billion to Rmb150 billion and its revenues to Rmb50 billion from Rmb10 billion.

The offshore renminbi bond market has been fairly quiet this year, in part due to increasing volatility in the Chinese currency. The People’s Bank of China, the country’s central bank, allow the yuan to depreciate by almost 2% against the US dollar on August 11, a surprise move that roiled foreign exchange markets globally.

The renminbi depreciation, the largest in more than two decades, fuelled talk of a global currency war as investors speculated that Beijing would try to revive slowing economic growth by weakening the currency, much like Japan and some emerging markets.

Companies have raised $16.6 billion via 195 transactions in the offshore renminbi bond market  so far this year, compared with $29.5 billion raised in 142 deals in the same period last year, according to Dealogic.

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