Country Garden sells bonds as Beijing relaxes fund-raising curbs

The Chinese developer is the latest company to sell bonds offshore, after Longfor and Greentown China

PUBLISHED : Wednesday, 19 July, 2017, 9:36pm
UPDATED : Thursday, 20 July, 2017, 3:28pm

Country Garden Holdings sold US$600 million of five-year bonds in Hong Kong on Wednesday, the latest in a recent string of issuances that signal a relaxation of policy curbs to raise funds by Chinese property developers.

Country Garden said the bonds would pay a coupon of 4.74 per cent and would have an option for the company to redeem prior to the maturity.

Goldman Sachs and Deutsche Bank were the joint global coordinators. Proceeds will be used for refinancing early redemption of the 2019 Notes and for general working capital purposes.

In March, the Chinese developer was forced to halt its Malaysian housing sales amid Beijing’s intensified crackdown on capital flight as mainland citizens were banned from converting yuan into currencies for overseas property purchases.

Since late last year, regulators have made it difficult for Chinese developers to issue onshore corporate bonds. In addition, the National Development and Reform Commission (NDRC) has also stopped granting quotas for offshore dollar bond issuance in the second quarter of this year.

Country Garden’s bond sale comes as a slew of other issues were sold in the offshore bond market in the recent weeks, including those by Longfor and Greentown China.

Fund-raising through the bond market has been relaxed as policymakers aim to avoid excessive tightening that would create systemic risks to the financial system.

Confusing bond sale rules are giving Chinese developers a ‘headache’

“On the one hand, regulators aim to prevent leverage at property companies from rising too quickly, but on the other hand, they need to ensure companies have sufficient borrowings for their operations, which will prevent systemic risks arising in the financial system,” said Angus To, deputy head of research at Industrial & Commercial Bank of China.

Liu Yi, an analyst at Guotai Junan Securities agreed.

Onshore bond supply would increase in the second half because of the relaxation of curbs after “an apparent resumption” of issuance since late June from various sectors including property, local government financing vehicles, and part of the overcapacity industries, Liu said.

To be sure, 40 billion yuan of corporate bonds through 25 issues – required to be registered with the NDRC or CSRC – were sold on the onshore market last week. They included issues from property developer Shimao, Gemdale, Agile, a Suzhou local government financing vehicle and Shougang Resources.

Country Garden’s notes have been provisionally rated Ba1 by Moody’s and BB+ by Fitch.

S&P last week revised Country Garden’s BB rating outlook to positive from stable, thanks to the improving leverage as the strong sales growth offset its high capital spending.

As the fundamentals of property developers have been gradually deteriorating, an abrupt termination of their fund-raising would result in an immediate impact to the companies. Policymakers are therefore loosening the control to raise funds in the bond market, as a continuation of credit tightening would increase risks substantially.