Evergrande, facing credit squeeze, looks to domestic market for fundraising

  • As China’s property market cools, concerns have been circulating over the financial stability of property developers
  • The parent company of Evergrande has received approval to raise 1.21 billion yuan (US$174.21 million) through the issuance of asset-backed securities, the Shanghai Stock Exchange said on Friday
PUBLISHED : Friday, 30 November, 2018, 10:11pm
UPDATED : Saturday, 01 December, 2018, 7:01am

Junk-rated China Evergrande Group, the nation’s second largest builder by sales, is turning to the domestic market for fundraising after its offshore bond issuance hit record high coupon rates, as investors become concerned about fallout from the cooling property market.

Evergrande Real Estate Group, the flagship subsidiary under the Evergrande Group, has received approval to raise 1.21 billion yuan (US$174.21 million) through the issuance of asset-backed securities (ABS), according to a notice on the Shanghai Stock Exchange on Friday.

It is the second approval for ABS issuance granted to Evergrande in 10 days. On November 22, the regulator approved a separate plan to raise 1.24 billion yuan by Evergrande.

The yield of the ABS notes remain unknown. The debt-laden property developer raised eyebrows in late October after it raised US$1.8 billion through three tranche notes. The 13.75 per cent coupon on the five-year bond was the highest interest rate the group has ever paid on a dollar debenture, according to Bloomberg data.

Evergrande chairman and founder, Hui Ka Yan, subscribed to more than half of the overall issue, a move seen as an attempt to lift investor confidence.

Evergrande’s bonds were assigned a B credit rating by ratings agency Standard & Poor’s – deep into junk-rated territory, as analysts raise questions about risks to the developer’s business, and to China’s real estate sector in general, as home sales slow and the mainland government continues to clamp down on credit.

The group is facing a combined US$70 billion bonds in mainland and offshore maturing this year.

Chinese home price gains slowed in September for the first time in half a year, adding to signs of a residential property market slowdown triggered by the government’s housing curbs.

Meanwhile, a record amount of bonds issued by property developers on the onshore and offshore market are due to mature in the coming year, with US$18.1 billion set for the first quarter of 2019.

Moody’s Asian Liquidity Stress Indicator in October reflected tight liquidity for rated Chinese property developers, driven by their high refinancing needs.

“Interest costs rose sharply in November for offshore bonds issued by Chinese high-yield developers and we expect them to remain high,” said a report issued by Moody’s on Friday.

A total of US$46.3 billion of onshore bonds and US$17.3 billion of offshore bonds will mature in the next 12 months. Moody’s expects some small and low-rated developers to come under stress as they struggle to refinance.

At least four property-related firms have defaulted on notes this year.