Two more Chinese property developers sold US dollar-denominated bonds this week, continuing a steady flow of companies seeking to lock in borrowing costs ahead of expected increases in US interest rates
Times Property and Yanlord Land enjoyed strong appetite for their bonds, as investors continue to seek higher coupons while accepting a greater possibility of default.
“Investors have to take more credit risk in the era of low-return environment,” a Singapore-based portfolio manager told FinanceAsia. “On the flipside, Chinese property developers are being disciplined in their funding needs because no one wants to be the next Kaisa.”
The order book for Times Property’s Reg S deal reached $2.8 billion at peak levels, while Yanlord garnered $1.7 billion of interest across 145 accounts. On Tuesday morning, both deals were trading above their offer price, in part driven by technical factors rather than fundamentals amid abundant liquidity.
“From a maturity standpoint, Chinese property developers' overall outstanding debts are manageable after posting solid sales growth in the past 12 months,” said the investor, who put orders in for both Times Property and Yanlord Land.
A mix of onshore Chinese money and Southeast Asia investors are looking for investment opportunities in China's property market, the investor said, even though valuations are increasingly stretched.
Yanlord Land
Singapore-listed Yanlord became the latest Chinese property developer to price in the international bond markets this year, after its peers China Aoyuan, China Jinmao and Guangzhou R&F collectively sold $1.2 billion of dollar bonds.
On Monday morning, the Ba3/BB- rated company went out with initial price guidance in the region of 6.25%, before narrowing the January 2022 bond to 5.875%. Final pricing of the Reg S deal was fixed at par to yield 5.875%, according to a term sheet seen by FinanceAsia.
Without an outstanding dollar bond, the best comparables were Road King's 4.7% $500 million 2021 bond and Country Garden's 4.75% $650 million 2023 bond, which were trading on a cash price of 96.875 and 97 respectively, or a relative yield of 5.47% and 5.29%.
The company plans to use the proceeds to refinance its existing debt and fund project development and acquisitions, including paying land premium and construction costs, and general corporate purposes.
The company has an outstanding 6.2% S$400 million bond maturing in May 2017, according to Dealogic.
By investor type, fund managers took 75%, private banks 22%, and sovereigns, corporates, and banks 3% between them. By region, Asian investors took 84% and Europe 16%.
Bookrunners were DBS, HSBC and Standard Chartered, while UOB was a joint lead manager.
Times Property
Hong Kong-listed Times Property, rated B1/B+/B+ by Moody's/S&P/Fitch, went out with initial guidance in the 6.625% area, before tightening the thee-year note to 6.25%. Final pricing of the $375 million January 2020 bond was fixed at par to yield 6.25%.
The best comparables were its two outstanding bonds: a 12.625% $305 million 2019 bond and 11.45% $280 million 2020 bond, which were trading on a yield-to-worst of 3.946% and 5.129%, respectively. The shorter-dated note is callable in March 2017 and the longer-dated note is callable in March 2018.
The new deal was priced at fair value, so there was little new-issue premium, according to a syndicate banker. The new proceeds will be used to finance existing debt. Besides the 2019 bond callable in March, it has an offshore renminbi-denominated bond maturing in July.
The global coordinators were Deutsche Bank, JP Morgan and UBS, while Citi, Credit Suisse, Guotai Junan International, Haitong International and ICBC International were joint bookrunners.
