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
Email a colleague
Request a PDF

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 China Merchants Securities Co 17.33
2 Industrial and Commercial Bank of China (ICBC) 14.45
3 CITIC Securities 10.36
4 Agricultural Bank of China (ABC) 9.42
5 China CITIC Bank Corp 8.48

Bookrunners of Asia-Pac (ex-Japan) ECM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Goldman Sachs 15,658.50 72 7.61%
2 Morgan Stanley 13,925.88 63 6.77%
3 Citi 13,640.97 88 6.63%
4 UBS 10,915.56 69 5.31%
5 China International Capital Corp Ltd 10,581.88 41 5.14%

Bookrunners of Asia Pacific (ex-Japan) G3 DCM

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 HSBC 21,505.44 181 7.68%
2 Citi 20,709.67 133 7.40%
3 JPMorgan 13,802.40 85 4.93%
4 Bank of America Merrill Lynch 12,328.25 77 4.40%
5 Goldman Sachs 11,208.75 54 4.00%

Asian polls & awards

  • GlobalRMB awards: Most impressive issuers, best law firm

    In this third part of the GlobalRMB awards, we present our reasons for choosing the best issuers in the FIG, corporate and SSA categories — and praise the strong performance of one well-known foreign law firm.

  • GlobalRMB awards: Person of the year, most impressive innovation

    In the final article on our GlobalRMB awards, we talk about the key innovation of the year and highlight the individual that has made the greatest contribution to the development of China’s cross-border capital markets.

  • GlobalRMB awards: Best bank for securities services

    Securities services was one of the most competitive award categories GlobalRMB had to decide this year. Our awards criteria demanded the near-impossible from participating banks: to beat the competition in the fast-changing China access scheme, while at the same time demonstrating a broad client base and the ability to be at the cutting edge of innovation.

  • GlobalRMB awards: Best for ABS, CNH, G3 and Panda bonds

    In GlobalRMB's Best Bank Awards for China DCM, Standard Chartered wins for ABS and CNH, HSBC takes home the G3 Bond House Award, and Bank of China gets kudos as the Best House for Panda bond issuers.

  • Now open! GlobalCapital Asia Capital Market Awards 2018

    GlobalCapital Asia is pleased to invite pitches for our annual capital markets and investment banking awards, rewarding the most impressive transactions and investment banks of 2018.