Chaoda blames market conditions for dropping US$250m bond sale

PUBLISHED : Tuesday, 10 May, 2011, 12:00am
UPDATED : Tuesday, 10 May, 2011, 12:00am


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Chaoda Modern Agriculture (Holdings) has scrapped a US$250 million bond sale.

The mainland farming giant, which has been slammed by analysts for excessive spending on land that remains idle, blamed 'current market conditions' for dropping the debt issue.

The cancellation came even though demand for mainland company bonds is booming and Chaoda was offering to pay at least 8.5 per cent interest.

Credit ratings agency Moody's Investors Service said yesterday the money flowing into Asian high-yield bonds had hit a three-year high.

'The market for China bonds is currently very robust, but [Chaoda] is a name where market perception has historically been mixed,' said Jeremy Amias, the founder of debt broker Amias Berman.

Last month, as Chaoda was attempting to sell its bonds, ratings agency Standard & Poor's called the mainland company's plan to double its farmland within the next five years 'aggressive'.

S&P also highlighted the risk of ballooning costs if projects did not finish on time.

And in a research note in March, analysts at investment bank Macquarie strongly queried why Chaoda was planning to buy so much more land.

Macquarie's Jake Lynch said the company already had an 'enormous' land bank that was not producing revenue.

While Chaoda claims to be the mainland's largest vegetable producer, Lynch said the firm also had a large collection of 'forestry plantations, livestock grazing grounds and mountain land of vague value'.

'Chaoda is much more focused on grabbing land than generating returns in even the mid-term,' he said.

Chaoda has raised US$571 million in stock and bond sales in the past two years to spend on new farms.

Meanwhile, chairman Kwok Ho has reduced his stake in the company through regular share sales to 19 per cent, from 31 per cent in 2007.

Chaoda also has a history of swapping auditors.

PricewaterhouseCoopers resigned as its auditor in 2003. Baker Tilly and CCIF then stepped down in June 2007 and were replaced by Grant Thornton.

Kwok sold a large chunk of Chaoda shares just days before the company announced a change in auditors in 2007.

A raft of mainland companies have issued US$5.2 billion worth of high-yield bonds - the type Chaoda attempted to issue - since March, according to Dealogic.

They included Guangzhou R&F Properties and China Resources Power Holdings.

Demand for Asian high-yield bonds had hit a three-year high because of 'overseas investor demand for diversity and yield', Moody's said in a research note.

Asian companies had sold US$7.7 billion worth of this high interest-paying debt sale so far this year, it said.

Chaoda's shares rose 2.53 per cent yesterday to close at HK$4.87.