Country Garden bonds net US$300m to fund projects

PUBLISHED : Thursday, 03 September, 2009, 12:00am
UPDATED : Thursday, 03 September, 2009, 12:00am

Country Garden Holdings yesterday became the first Chinese company to tap the junk-bond market since the outbreak of the financial crisis, raising US$300 million from a five-year, high-yield bond issue, according to investors and fund managers.

The developer hired JP Morgan as sole book runner on the transaction, which opened for investors on Tuesday and closed yesterday.

The order book amounted to US$800 million, helping to tighten the price of the bond at a yield of 11.75 per cent, the low end of the indicative yield price that went as high as 12 per cent, people close to the transaction said.

Guangzhou-based Country Garden had set up a number of one-on-one interviews with more than 60 potential clients since last week to secure enough orders for the bond issuance and received a modest response from professional investors.

'Hedge funds and money investors are the biggest buyers with around a 45 per cent contribution, while insurance companies, private clients and commercial banks took on the remainder,' according to a person familiar with the bond issuance.

'The deal was completed within two days, compared to the usual practice of at least one to two weeks, reflecting that investor interest has been returning to good quality issuers,' the source added.

Apart from Country Garden, developer Henderson Land Development was also said to soon be tapping the international bond market for at least US$500 million. However, its bonds are likely to be investment grade.

The developer met more than 20 investors yesterday in order to collect opinions about a proposed bond issue, according to a fund manager who attended the meeting.

'That's a non-deal meeting but everybody knows they want to raise new funds through a bond issuance,' said the fund manager.

The net proceeds from the bond issue will be used to fund the repayment in full of the company's US$35 million revolving loan facility with Citic Ka Wah Bank. Part of the proceeds will also fund existing and new property projects, including construction costs and land premiums, and for general working capital.

'The response is not bad if the bond is fully subscribed given the uncertain environment,' said David Ng, the head of regional property research at Royal Bank of Scotland.

The stock market has reacted negatively amid rising concerns over the central government's move to tighten monetary policy, Ng said.

Moody's Investors Service yesterday assigned a rating of Ba3 to the bonds with a negative outlook, while Standard & Poor's assigned a BB issue rating on CreditWatch with negative implications.

'Country Garden's Ba3 corporate family rating reflects its large size and extensive experience in suburban property development in Guangdong province,' said Peter Choy, a Moody's vice-president and senior credit officer. 'In addition, its low land costs and pricing flexibility have also resulted in stable sales performance through the down cycle. The proposed bond issuance will also improve its near-term liquidity profile.'

The outlook reflects Moody's expectation that Country Garden is still struggling to establish a track record with projects outside Guangdong. Higher ratings are unlikely in the near term given the negative outlook.