Country Garden seeks US$1.5b in record bond sale

PUBLISHED : Thursday, 01 November, 2007, 12:00am
UPDATED : Thursday, 01 November, 2007, 12:00am

Firm taps high-yield debt market

Country Garden Holdings, the mainland's largest integrated property developer measured by the size of its land bank, may raise as much as US$1.5 billion in the biggest high-yield bond sale by a mainland company, market sources said.

A credit crunch caused by the subprime-backed securities crisis in the United States has dried up liquidity in the Asian high-yield market since July.

'There is a lot of money in the region looking to invest in bonds, and the Asian credit market will reopen soon,' said a Hong Kong-based fixed income hedge fund manager.

The mega-sized bond sale tops the US$1 billion bond sale by Citic Resources Holdings in May.

Country Garden, which had 54.7 million square metres in its land bank as of August 15 - the highest in the country's property sector - has hired Bank of China International, Citi, Deutsche Bank, HSBC, JPMorgan, Morgan Stanley and UBS to arrange the issue.

The Guangdong-based developer is meeting global investors this week and pricing is expected to come next week. The issue will have two tranches of five and 10 years, according to an email to investors this week.

Standard & Poor's rates the issue BBB-minus, the lowest investment grade. Moody's rates it Ba1, one notch below investment grade.

Fund managers looking at the deal are impressed by the strong balance sheet of the company, but some are worried that the deal might be oversized, making it hard to find buyers in the secondary market.

Investors said the coupon rate was likely to be about 10 per cent for the 10-year tranche. Others said it would be about 250 basis points above the 8.5 per cent yield of Shimao Property Holdings' 10-year bonds issued in November last year.

Country Garden faces higher financing costs because the yields that investors demand have risen significantly since the subprime crisis.

Citic Resources' seven-year bond issued in May, rated one to two steps lower than the Country Garden issue, has a coupon of 6.5 per cent, the tightest pricing of any mainland high-yield deal.

Meanwhile, Coastal Greenland, a small mainland developer, will soon complete a bond issue to raise US$150 million to pay back existing debt and for mainland expansion, according to a term sheet sent to investors. The original US$100 million was already sold to investors.

The other US$50 million will be taken by a corporate investor that the term sheet did not identify.

The five-year securities have an interest rate of 12 per cent and investors will get 74,415 warrants for every $100,000 of bonds.

The warrants allow investors to buy Coastal Greenland shares at HK$2.46 each, 8.3 per cent above Tuesday's closing price.

Standard & Poor's rates the bonds B, or five steps below investment grade. Moody's gives a comparable B2 ranking.

Trading in Coastal Greenland shares, which have gained 127 per cent in the past 12 months, was suspended yesterday.