Country Garden to sell debt for bond buy-back

PUBLISHED : Thursday, 05 August, 2010, 12:00am
UPDATED : Thursday, 05 August, 2010, 12:00am

Guangdong-based developer Country Garden Holdings plans to issue senior notes to buy back convertible bonds and finance property projects in its second debt-selling exercise this year.

The developer proposes to issue notes with a five-year maturity so it can repurchase its outstanding convertible bonds due in 2013 and pay the construction costs and land premium on existing and new projects.

In April, the company issued senior notes with a seven-year maturity to buy back 4.3 billion yuan (HK$4.93 billion) worth of convertible bonds.

Guangzhou-based KWG Property Holdings announced a similar plan earlier.

David Ng, head of regional property research at the Royal Bank of Scotland, said mainland developers were eager to issue bonds as they needed capital to replenish their land banks. 'With the weak mainland property market sentiment, many developers have no confidence in achieving their sales targets in the second half. If they are seeking financing, then the bond market is a better choice compared with the stock market,' he said.

'The appetite of investors for bonds is growing. Bonds issued by several mainland developers previously offered a yield of more than 10 per cent, which is attractive to investors and why it is easier for developers to raise funds in the bond market.'

Standard & Poor's rating services yesterday assigned a BB-minus rating on the proposed notes issue by Country Garden, one notch lower than the long-term corporate credit rating. The rating agency believes that offshore noteholders would be materially disadvantaged, compared with onshore creditors, in the event of a default.

They do not expect Country Garden's total borrowings to increase by more than 15 per cent from the end of last year and believe the builder's financial performance will improve this year, compared with 2009.

Shares in Country Garden dropped 2.31 per cent to close at HK$2.54 yesterday.