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Peggy Sito

Low bond rates in Europe and a stronger US dollar has prompted mainland China’s leading developer China Overseas Land & Investment (COLI) to become the first mainland developer to tap the European debt market, and analysts feel other leading property players could follow although smaller developers may refrain from trying this route.
“This is a very smart move I would say, eyeing the potentially weakening Euro on top of the very low coupon,” said Bocom International analyst Alfred Lau .
COLI early this month announced an issue of a EUR600 million note with a 4-year maturity period.
Backed by its BBB+ rating, the annual coupon was fixed at 1.75 per cent, which is less than half that of its US dollar bond issue last year, according to investment bank Jefferies. It is the first Euro bond issued by a mainland Chinese developer.
Analysts said the Euro bond provided more flexibility for developers in refinancing. Historically, slow-growth environments are good for bonds because they imply low inflation.
“Euro is attractive at the moment due to its low funding costs,” said Dilip Parameswaran, Hong Kong-based head of Asia Investment Advisors.
In terms of the currency outlook, while the US dollar may strengthen in the wake of an interest rate increase by the US Federal Reserve later this year, the EUR outlook is less aggressive, he said.
Analsyts said COLI, as a leading developer, would like to maintain diverse sources of funding. They believe strong names with sound credit profiles may be able to follow at this stage.
“Perhaps a couple of other large issuers may do it,” said Parameswaran.
Christopher Yip, director of Corporate Ratings, Standard & Poor’s, said COLI could do it because of its investment grade rating and its sound credit profile. He believed COLI hoped to diversify its offshore bonds in the wake of stronger US currency.
“But it would not be easy for non-investment grade developers to follow suit as their coupon rates offshore are much higher,” said Yip. He expected the majority of smaller domestic developers to prefer tapping the domestic market as rates there are more advantageous for those.
According to Jefferies, developers were still active in refinancing activity, especially in the domestic bond market.
Evergrande Real Estate and Guangzhou R&F Properties both recently fully utilized their China Securities Regulatory Commission -approved quotas by issuing corporate bonds of 15 billion yuan and 6.5 billion yuan respectively, at an annual coupon of around 5 per cent to 7 per cent.
A smaller developer such as Times Property was able to issue 2 billion yuan in corporate bonds at a coupon of 6.75 per cent.
From the beginning of the year to mid of July, developers have raised 63 billion yuan through the domestic bond market, according to Jefferies.
The nation’s biggest homebuilder China Vanke also announced its plan to issue nine billion yuan of onshore bonds with tenures of up to five years.
Jefferies expects the financing and physical market in mainland in the second half are uncertain.
 
 
 


Big Chinese developers expected to eye Euro bond market

A luxury projected owned by China Overseas Land & Investment, which became  the first mainland developer to tap the European debt market. Photo: Peggy Sito 

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.css-sioo19{color:#c79a00;}New | Big Chinese developers expected to eye Euro bond market

New | Big Chinese developers expected to eye Euro bond market