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Wanda bonds trade like they're junk despite AAA China rating

[SHANGHAI] Nearly two months after reports about Chinese regulators' scrutiny of the country's top dealmakers, the concerns have left a mark in the local bond market, where one of those companies is facing yields double the national average.

Yields on onshore securities without put or call options of Dalian Wanda Commercial Properties Co, which has an AAA rating onshore, are above 9 per cent, according to valuations compiled by Chinabond. That compares with the average 4.55 per cent yield on top-rated notes due in three years from all corporate borrowers in the country. It's also higher than the 5.8 per cent average yield on three-year notes with AA- ratings, considered junk in China.

People familiar with the matter said in June that the Chinese banking regulator asked some banks to provide information on overseas loans made to top dealmakers including Dalian Wanda Group Co, the parent of the property subsidiary. Wanda's disposal of tourism and hotel assets to two rival Chinese developers last month has added to investors' confusion.

"Chinese investors are concerned about non-operational risks," said Qin Han, chief bond analyst at Guotai Junan Securities Co in Shanghai. "Uncertainties about the risks may stay for some time. But it doesn't mean any particular problem with the company's credit fundamental." Wanda Group declined to comment.

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The yield on Wanda Commercial's 4 per cent April 2021 notes has climbed 235 basis points to 9.36 per cent since June 22, the day of the news about the banking regulator scrutiny. The rate on its 3.7 per cent bond due March 2021 has risen 234 basis points to 9.34 per cent. That compares with no change in the average yield of three-year AAA corporate notes in the period.

Wanda Commercial has taken a break from raising money in the onshore and offshore bond market, set for its first quarterly hiatus since June 2015, according to Bloomberg-compiled data. The company delisted from the Hong Kong stock exchange in September, with the aim of eventually re-listing in China as billionaire Wang Jianlin seeks higher valuation in the mainland.

"What worries the investors is the unspoken reasons behind Wanda's disposals," said Chuanyi Zhou, credit analyst in Singapore at Lucror Analytics. "The company also lacks transparency after the delisting from Hong Kong exchange."

Wanda Group agreed in July to sell a 91 per cent stake in a collection of cultural and tourism projects across the nation to Sunac China Holdings Ltd for 43.8 billion yuan (S$8.94 billion). Guangzhou R&F Properties Co separately agreed to pick up some city hotels from Wanda for 19.9 billion yuan - assets that originally were to be sold to Sunac when the deal was first announced on July 10.

After the Shanghai Stock Exchange in May approved Wanda Commercial's plan to sell 30 billion yuan of bonds, the developer hasn't made any announcement on when it's going to offer the notes.

"The refinancing risk has also been increasing, given the government's crackdown on offshore investment and onshore lending," said Mr Zhou.

Dagong Global Credit Rating Co hasn't released any announcement after confirming Dalian Wanda Commercial's issuer and bond ratings of AAA in May, according to Chinamoney website. The press department of Dagong declined to comment on whether the rating firm plans to revise the credit score.

The top score by Dagong contrasts with a BBB- rating, the lowest investment-grade ranking, from S&P Global Ratings. On July 17, S&P placed it on creditwatch negative because of the unexpected sales of the company's tourism projects and hotels. Wanda Commercial's property sales will likely decline significantly after it offloads its tourism projects, which include the bulk of its land reserves, according to S&P.

Nomura Holdings Inc recommends a "small underweight" position on Wanda Commercial's offshore bonds on concern about Wanda Group's liquidity situation because of the parent's aggressive overseas acquisitions and the reported scrutiny from the government, according to credit desk analyst Tony Chen.

The builder is rated BBB by Fitch Ratings, and Baa3 by Moody's Investors Service.

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