Fortune may prove fickle for Chinese real estate

Chinese high yield property issuers have shown that they have investors in the palms of their hands, taking advantage of accounts’ hunger for yield to price deals at levels that would have been impossible a few months ago. But as more property companies face refinancing needs and investors spend their cash, borrowers will need to adapt to a tougher pricing environment.

  • By Morgan Davis
  • 16 Feb 2017
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The high yield issuance window is well and truly open. Last week, Future Land Development Holdings saw the opportunity to price a $350m 5% 2020 on the back of a $4bn book. The notes had launched with initial price guidance at the 5.625% area, and analysts quoted fair value at around 5.25%.

Following that success, Road King Infrastructure sealed a $300m perpetual non call five this week at a coupon of 7.95% from an order book of $5.5bn. Road King drove a hard bargain, offering the notes with a fixed for life structure — a first for an Asian high yield name. But investors still jumped into the deal, much to the surprise of some analysts.

But real estate issuers should not get too used to it being a seller’s market. Investors that spoke to GlobalCapital Asia said that while they are buying the paper, they are not necessarily doing so enthusiastically. Instead, their response is driven by a lack of much else coming their way.

In part, borrowers are benefitting because investors have deep pockets and are ready to spend given it is the start of the year.

But there is big pipeline of Asian issuers waiting in the wings. Property names lower down on the credit spectrum are expected to head out with new notes in the coming weeks, inevitably hoping to benefit from the market backdrop, according to market watchers.

Heavy offshore issuance is also expected from property names that have notes maturing this year. So while investors are taking yield where they see it now, the situation could change when they have more options to buy.

In addition, 2017 the year is widely expected to be peppered with global volatility. The impending elections in Europe could cause volatility, as could further solidification of Brexit plans or US president Donald Trump’s tweets.

Markets are blissfully bullish at the moment — in contrast to three months ago when jitters forced property name Country Garden to pull its deal, before it returned with a heavily anchored trade. The cancelled deal was blamed by many on an aggressive pricing target.

Chinese high yield property issuers are right to revel in the current market, but Country Garden’s story should not be forgotten. The window could shut as quickly as it opened.   

  • By Morgan Davis
  • 16 Feb 2017

Panda Bonds Top Arrangers

Rank Arranger Share % by Volume
1 CITIC Securities 44.72
2 China CITIC Bank Corp 22.36
3 Industrial and Commercial Bank of China (ICBC) 10.16
3 China Merchants Bank Co 10.16
3 Bank of China (BOC) 10.16

Bookrunners of Asia-Pac (ex-Japan) ECM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 24 May 2017
1 CITIC Securities 6,837.51 32 7.14%
2 China International Capital Corp Ltd 6,746.42 29 7.04%
3 Goldman Sachs 5,682.95 21 5.93%
4 China Securities Co Ltd 4,703.49 25 4.91%
5 UBS 4,459.61 23 4.65%

Bookrunners of Asia Pacific (ex-Japan) G3 DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 24 May 2017
1 HSBC 17,927.36 101 9.30%
2 Citi 15,452.58 89 8.01%
3 JPMorgan 12,180.99 61 6.32%
4 Morgan Stanley 9,251.45 43 4.80%
5 Standard Chartered Bank 8,766.36 56 4.55%

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