Agile lines up US$200m bond issue

PUBLISHED : Saturday, 12 August, 2006, 12:00am
UPDATED : Saturday, 12 August, 2006, 12:00am

Analysts warn of weak investor sentiment after Ocean Grand collapse and recent rating downgrades

Zhongshan-based developer Agile Property Holdings is planning to raise about US$200 million by selling bonds next month even as investor sentiment to high-yield bonds weakens in Asia, particularly China, market sources said, blaming last month's collapse of Ocean Grand Holdings and recent ratings downgrades.

Agile has hired HSBC and Morgan Stanley to arrange the sale, according to market sources. Both banks declined to comment. Agile chairman Chen Zhou Lin could not be reached for comment.

'The Fed's doing wonders and the market in the US is booming for August but that is not what we're seeing in Asia,' said a person familiar with the deal. The US Federal Reserve halted over two years of continuous interest rate increases at its last meeting this month which should have been encouraging for bond investors who tend to react negatively to a rising interest rate environment because it takes a bite out of the yield provided by fixed-income products.

But the market for China's high-yield debt does not look good in the light of recent events. 'There have been a lot of rating downgrades, including Hopson [Development Holding] and Panva Gas, there are question marks about Chaoda [Modern Agriculture] and Ocean Grand blew out,' said Dilip Parameswaran, the head of credit research at Calyon Corporate and Investment Bank.

The biggest blow to China's high-yield market came last month when Ocean Grand, an aluminium and chemical maker, defaulted on US$160 million in bonds it sold earlier this year as well as outstanding bank loans. That company entered provisional liquidation after more than 800 million yuan of corporate funds went missing.

Adding to the worries, the credit rating of Hopson, a mainland property developer controlled by millionaire Zhu Mengyi, and Panva Gas, a mainland gas distributor partly owned by tycoon Li Ka-shing, were in the past two months both downgraded two steps below investment grade, to Ba2, by Moody's Investors Service.

Cited by Moody's for weaker than expected earnings and aggressive capital expenditure, Hopson has seven-year bonds maturing in 2012 that trade at 385 basis points over comparable US Treasury bonds and yield 8.73 per cent.

Panva, which was criticised for disappointing financial performance and delays in executing its planned expansion, has seven-year bonds maturing in 2011 that trade at 358 basis points over comparable US Treasuries and yield 8.45 per cent.

Meanwhile, bonds issued by Chaoda, the mainland's largest vegetable grower, have been volatile because of a China Daily report last week questioning the authenticity of its organic products, something the company has since rebuffed, as well as for using raised funds in ways other than what was initially promised during the issuance of HK$1.34 billion of convertible bonds in April.

'[Agile's] going to need the market to improve dramatically to do this' bond sale, said a bond banker at a rival house.

The developer's profit last year rose more than four times to 978 million yuan on sales that doubled to 5.4 billion. But companies such as Agile, focused on high-end housing, are expected to take a hit on profit margins after new restrictions on such projects by regulators in Beijing.