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China’s biggest residential property developer China Vanke is planning a debut US dollar bond, offering investors the chance to buy a rare high-grade bond out of the China property sector.
The company kicks off investor meetings in Hong Kong, Singapore and London today. Bank of China (Hong Kong), Deutsche Bank, DBS, HSBC, J.P. Morgan and UBS are arranging the meetings. According to one source, Vanke is looking at a longer tenor, possibly in the range of seven to 10 years.
The timing of the deal is interesting as it comes just days after China’s State Council issued six measures to keep housing prices down on March 1. As a result, Chinese property stocks sold off sharply and property bonds were down at least one point across the board on Monday.
The company’s chairman and founder, Wang Shi, also recently appeared on an episode of CBS’s 60 Minutes, admitting to interviewer Lesley Stahl that he thought there was a property bubble in China.
However, the Shenzhen-listed China Vanke benefits from being the biggest home builder in China, with a market capitalisation of about $20 billion. It also has rarity value as it is one of only a handful of high-grade Chinese property companies, including China Overseas Land, China Resources Land and Yuexiu Property, which many investors consider to be a marginally investment-grade credit.
China Vanke is rated BBB+ by Standard & Poor’s and Fitch and Baa2 by Moody’s. “The rating on Vanke reflects our view of the benefits the company derives from being the biggest residential developer in the Chinese real estate sector in terms of sales value, its geographically diversified property portfolio, and strong sales execution,” said Standard & Poor’s credit analyst Bei Fu. “In contrast, the company has limited access to financing channels compared with its peers, and therefore faces higher financing costs.”
China Vanke has projects in more than 50 cities in the Pearl River Delta, the Yangtze River Delta, the Bohai Bay Rim, as well as central and western China.
It is testing the market after a deluge of paper from the property sector priced in January and investors are getting choosier. “Two weeks ago, CIFI — a small Chinese high-yield property developer with a relatively short track record — tried to print a deal, but didn’t manage to as the company and investors had different pricing expectations,” said Lim Swee Ching, a credit analyst at Western Asset Management.
“However, given that there is still a dearth of investment-grade Chinese property companies and China Vanke’s size and long operating history, I think the issuance will come down to the pricing and tenor of the deal,” he added.
Even after the record China property issuance seen in January, there is still a strong pipeline. “There are quite a few real estate issuers with deals in the pipeline but the problem is that the real estate sector has been hit badly in the equity markets recently and that has led to a sell-off in the secondary bond markets,” said a banker. “The weaker names may choose not to launch in this climate. The stronger names are likely to still continue to try and will probably succeed.”
Mainland developer Kaisa is holding a non-deal roadshow and meeting with investors in Singapore on Thursday, after the release of its annual results. Credit Suisse and J.P. Morgan are the arrangers. Evergrande Real Estate is also rumoured to be looking to tap the bond market. However, the company has already raised $561 million through a top-up placement in January, which means it has some cash.
