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Bonds

Chinese firms’ US dollar bonds snapped up as hopes of trade war breakthrough boost confidence

  • A flurry of bonds issued by small Chinese firms in US dollars this week have been met with healthy demand from investors as sentiment improves
PUBLISHED : Friday, 11 January, 2019, 6:33am
UPDATED : Friday, 11 January, 2019, 1:17pm

A flurry of bonds issued by small Chinese firms in US dollars this week have been met with healthy demand from investors as market sentiment improves amid an easing of US-China trade tensions and signs of monetary easing.

Sunac China Holdings, fourth largest mainland developers by sales, on Friday saw its US$600 million, two-year bond oversubscribed nearly four times. It was issued with a coupon rate of 8.375 per cent, 50 basis points lower than the initial guidance.

On Thursday, Road King Infrastructure, a Hong Kong-listed developer with annual sales revenue of 37.2 billion yuan (US$5.53 billion), saw its 2.25-year bonds over subscribed by more than 10 times on Thursday. The US$400 million of notes received US$4.1 billion in orders from mostly Asian asset managers and banks, while the final coupon came in at 7.75 per cent, 50 basis points lower than the initial guidance.

China SCE Property on Wednesday sold US$500 million of bonds due in 2021 with a coupon of 8.75 per cent, compared with the 9.125 per cent initial guidance, according to Bloomberg.

Powerlong Real Estate Holdings, another small Hong Kong-listed developer, received US$380 million in orders for its US$200 million two-year bond on Tuesday.

The outcome is a sharp contrast with the situation just two months ago, when Chinese property tycoon Hui Ka Yan had to pay investors a coupon of 13.75 per cent for his China Evergrande Group’s US dollar bonds, even as he himself bought half of the notes. At that time, the outlook for Chinese property had dipped as home sales fell for a third straight month, and there were few signs of an easing in property policy.

Highly indebted developer China Evergrande to pay double-digit interest on US dollar bonds

Analysts said sentiment in the property sector had improved marginally, but the decisive factor in the success of the bond sales was bullish sentiment across all sectors.

“The flurry of new issuances since the new year does point to the fact that investor appetite has improved from the end of last year. Given the large number of maturities Chinese developers face this year, this would offer some reprieve to their refinancing needs if sustained,” said Christopher Yip, senior director and analytical manager at S&P Global Ratings.

The Hang Seng Index, Hong Kong’s benchmark, extended its rally to a fifth consecutive day on Thursday, closing 5.7 per cent higher than its level on January 4. The Bloomberg Barclays China High-yield Bond Index rose between January 7 and January 9.

Esther Liu, a credit analyst at S&P Global Ratings, said sentiment had also been boosted by the National Development and Reform Commission’s move to push back the deadline for Chinese firms to issue bonds within their 2018 quota to June 30 this year, potentially allowing more issuances for refinancing purposes.

Additional reporting by Pearl Liu

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