Mainland developer CIFI Holdings bucks high coupon trend on US$400 million bond
- CIFI Holdings pays coupon of 7.625pc compared to 13.75pc for China Evergrande Group
- Analysts say rates are reasonable, but warn of growing risks
Hong Kong-listed CIFI Holdings (Group) on Tuesday became the latest mainland developer to issue bonds as they face surging refinance demand as more than US$37 billion worth of debt matures next year.
Bond defaults among Chinese developers is on the rise, with Xinhua reporting in November that at least four companies have defaulted on their payments this year, including Wuzhou International Holdings, a developer based in Wuxi, which in June failed to repay bonds in both the mainland and offshore markets.
Chinese developers have been facing a severe cash crunch since the government started a crackdown on shadow financing in 2016.
Moody’s Investors Service said in a report on November 30 that it expects Chinese property developers to see higher average funding costs and that property sales will decline by around 5 per cent by value next year compared to 2018.
CIFI Holdings, which develops properties in China’s first, second and third tier cities, will pay a coupon of 7.625 per cent on its US$400 million bond – the lowest among Chinese issuers in recent months, the company said in a statement.
In October, China Evergrande Group, the mainland’s most indebted developer, raised about US$1.5 billion in three tranches, paying 13.75 per cent coupon on its five-year bond – the highest interest rate the group has ever paid on a dollar debenture, according to Bloomberg.
CIFI Holdings said that it has raised US$2.6 billion from offshore bonds this year at an average cost of 6.275 per cent.
Analysts described the coupon as reasonable, but warned that risks were growing.
Ryan Chan Ching-sum, associate director at Eddid Securities and Futures, said the timing was good, as the financing environment was set to become tight.
“There was a US$1.5 billion demand from the market as the total bond amount issuance was small,” Chan said. “The only concern is whether sales will drop significantly in 2019, which will affect the revenues and its profitability directly. As financing cost is increasing, the cash flow will then turn negative.”
He also noted that maturing debts of mainland-based developers will reach around US$37 billion, higher than the estimated US$29 billion this year.
“We can foresee next year that refinancing demand will increase, which makes the environment more difficult as financing cost will also increase,” Chan said.
Robert Lee, executive director at Grand Finance Group, said other bonds with similar maturities, industry and credit ratings have been issued at higher rates.
“There are sufficient cash levels at the current moment but long-term debt has been increasing in the last few years. Overall, the industry is facing declining revenues and pressure to deleverage,” said Lee.