Shimao bond issue tests market after Kaisa default
Shares of Shimao Property opened strong in early trading as the company announced its US$800 million notes issue, the first international debt offering from the mainland property sector since the troubled Kaisa Group’s bond default last month.
In a filing with the Hong Kong stock exchange on Wednesday, Shimao chairman Hui Wing Mau said the company has entered into purchase agreements with HSBC, Standard Chartered Bank, Goldman Sachs, UBS, JP Morgan, Morgan Stanley and CLSA.
Shanghai-based Shimao saw its share price open up 1.21 per cent to HK$16.62, from Tuesday’s close of HK$16.42. The stock was up 0.24 per cent to HK$16.46 at the mid-day break.
The company’s bond issue, which carries an interest rate of 8.375 per cent a year, is scheduled to mature on February 10, 2022.
Net proceeds are estimated to reach US$790.9 million, after deducting the underwriting discounts, commissions and other expenses.
Shimao intends to use the proceeds to refinance existing debts, including redemption of its 2011 notes due in 2018, as well as fund new and existing property development projects and other general corporate purposes.
“The company may adjust the foregoing plans in response to changing market conditions and thus, reallocate the use of proceeds,” Hui said.
Standard & Poor’s assigned a “BB-“ rating to Shimao’s latest bond offering, while Fitch provided a “BB+” rating.
We believe that Shimao’s increasing property sales and cautious land acquisitions will largely offset an increase in debt owing to expanding operations in 2015
“Shimao’s property sales are weaker than budgeted, but remain commensurate with the corporate credit rating,” Standard & Poor’s said in a report.
Sales last year for Shimao increased 5 per cent to 70.2 billion yuan, from 67 billion yuan in 2013. Its cash payments for land fell below 25 billion yuan, compared with 35 billion yuan in 2013.
“We believe that Shimao’s increasing property sales and cautious land acquisitions will largely offset an increase in debt owing to expanding operations in 2015,” Standard & Poor’s said.
Shimao is focused on developing mid- to high-end residential, retail and office properties for sale, as well as prime hotel, retail and office properties for long-term investment. Its projects are located in Shanghai, Beijing, Hangzhou, Suzhou, Nanjing, Fuzhou and other fast-growing cities on the mainland.
Fitch said its rating for Shimao’s bond issue is supported by the developer’s “large and well-located land bank of 36 million square metres across China and its proven track record in selective expansion in third-tier cities and tourism properties”.
Shimao’s successful bond offering may provide much-needed relief to the mainland property sector, after Kaisa’s default on a bond payment due on January 8 was thought to spook international investors.
