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China bonds need protection from homeward flight: Gadfly commentary

[SINGAPORE] China's offshore creditors could use some help from Mr Liang Jian. The former journalist who now runs iMeigu Capital Management has been on a crusade against companies that withdraw their shares from trading in the US either to sell stock in China or stay out of the market completely. That trend has been dogging bond investors.

While Mr Liang has centered his attention on Internet companies, Chinese property developers are jumping on the same bandwagon. These also happen to be the biggest issuers of offshore high-yield notes in Asia. On Monday, Dalian Wanda Commercial Properties, controlled by billionaire Wang Jianlin, requested its shares be halted from trading pending a buyout plan that will help him relist the company in mainland China.

Meanwhile, shares of Evergrande Real Estate Group, which has one of the biggest high-yield dollar bonds outstanding from China, surged the most in more than a month after the company said on Sunday that it agreed to pay 3.6 billion yuan (S$750.8 million) for a stake in Shenzhen-traded China Calxon Group. That's a sign Evergrande Chairman Hui Ka Yan may be considering a similar maneuver.

Bondholders weren't quite as cheerful, with Evergrande's offshore dollar debt dropping on speculation that the developer will move its stock listing across the border.

Dalian Wanda's bonds and stock took similar diverging paths. The reason is simple: Shareholders will get a one-time payoff and can move on, while offshore bondholders are stuck with a company that's removed from the scrutiny of public markets, at least for a period.

For overseas noteholders, a return to mainland China would mean reduced transparency. Most companies in Shanghai and Shenzhen report only in Chinese. That means bond investors will either have to hire people who can read the language, or will have to wait for the annual report in English that companies produce for foreign creditors.

That is, if they return to public trading at all. Schroder Investment Management has been compiling a spreadsheet since 2014 of Chinese companies listed in the US that are rethinking their status. The fund-management company already has more than 50 names, and at least three of them have offshore notes. 

The trend has prompted suggestions that bond documents include a clause protecting investors against changes in the listing status of Chinese companies. So far, the proposal has remained in the realm of discussion. Given how popular the return home is proving, it's an idea that deserves serious consideration.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.


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