The troubles experienced by Chinese high yield property firms since the start of the year have been seismic. The fiasco surrounding Kaisa Group created a huge overhang on the entire sector.
Volumes have taken a big hit as a result, with only four deals worth roughly $3bn so far this year, including Times Property. By comparison, in the same period of time last year, twelve Chinese high yield property names tapped the dollar market for roughly $5bn, according to Dealogic.
But the deals that have managed to come this year have had very contrasting fates. Two from the double B bracket met with a positive reception — Shimao Property Holdings and Country Garden Holdings.
The third deal was lower rated, in the single B spectrum, a $1bn transaction from Evergrande Real Estate Group. And while the size might suggest it did well, the reality was different. Evergrande wanted to print $1.5bn but failed to attract enough bids. And its failure was amplified by the fact that it already had an $800m anchor order in place.
If any conclusion was to be drawn from this deal, it would be that investor sentiment towards single B property names is terrible.
This is why the deal for Times Property, rated B2/B/B+, was so important. A $1bn order book is far from a blowout, but it still translated into a credible, nearly four times covered, deal.
In addition, unlike Evergrande, which relied heavily on a single huge ticket, Times Property was a far more widely marketed transaction, which will give potential issuers the confidence that the market, and not just one account, has got over the struggles of the sector. Sentiment towards weaker property credits, it seems, is finally on the mend.
On a broader scale, things are also looking good for the sector thanks to China lowering its interest rates for the second time in four months. The PBoC cut the one year loan rate and one year deposit rate by 25bp to 5.35% and 2.5%, respectively, on February 28.
This will help alleviate some of the fears investors have harboured about Chinese property, which is the inability of the sector to get easy access to funding. Other Chinese high yield property names would do well to try and take advantage of the improved sentiment.
Still, a flood of single B property names might be too much for the market to digest, which is why it will be important for banks to keep issuers grounded and let the dealflow grow slowly. The foundations have now been laid by Times Property and the PBoC. With good judgement, others will be able to build on them.