Poly Real Estate's US$500m bond reopens market
Poly Real Estate Group yesterday sold a US$500 million bond, reopening the Chinese property bond market after a one-month closure.
Following a big start to the year in which US$5 billion of China property bonds priced in January-February, according to Thomson Reuters, issuance effectively shut down in March after the default of Zhejiang Xingrun Real Estate on 3.5 billion yuan (HK$4.4 billion) of domestic bank loans and other debt.
Investors are concerned about refinancing risk, particularly as the developers have lost access to trust loans. Investors also see the government is willing to let overleveraged developers go bust.
Fissures are forming for the sector. Nanjing Fudi Property Developing failed to repay a 90 million yuan loan that came due this month, wrote Nomura economist Zhiwei Zhang in a note on Wednesday. Zhang added that, in March, Guizhou Anrui Property obtained a six-month extension on a 30 million yuan loan, and in February, Huaian Hongkang Property gained its own six-month extension on a 50 million yuan loan.
Elsewhere, Moody's yesterday downgraded China property developer Zhong An Real Estate to B3, from B2, on concerns of growing refinancing risk.
Poly Real Estate, in that regard, was a good name to reopen this market. The state-owned enterprise is rated BBB-plus/Baa2 (S&P/Moody's) and a default from this name is inconceivable for investors.
China's property sector is overwhelmingly sub-investment grade, and the bigger test for this market would be a bond from a high-yield name.
"The key point was that this [the Poly Real Estate bond] was investment grade … it's a different investor base to high yield," said Job Campbell, a Hong Kong-based portfolio manager at Income Partners.
The JACI China high-yield property index - the most followed benchmark - is down 0.6 per cent in the year to April 11, while JACI's overall China index is up 2.33 per cent.
The five-year Poly Real Estate bond priced at a yield of 5.385 per cent, or 16 basis points above where existing debt from the issuer trades. Citic Securities and HSBC led the deal.