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China's Evergrande sells US$3b in bonds; coupons top 10%

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Evergrande is China's second-largest property developer by sales and has been under pressure to raise funds to cut down its large debt pile.

Hong Kong

CHINA Evergrande Group, one of China's most indebted property developers, sold US$3 billion in dollar bonds on Wednesday in one of the largest deals so far this year.

Evergrande is China's second- largest property developer by sales and has been under pressure to raise funds to cut its large debt pile, which stood at 671.1 billion yuan (S$134.4 billion) as at June 2018, according to CreditSights.

The company sold US$1.1 billion in bonds maturing in 2020, US$875 million in bonds maturing in 2021 and US$1.025 billion in notes due in 2022, according to a term sheet seen by Reuters.

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The sale was a reopening of US$2.1 billion in existing bonds although the coupons on the new ones were a lot higher.

Evergrande offered to pay 8.25 per cent for the 2020 bonds, an increase of 125 basis points (bps), 9.5 per cent for the 2021 bonds, an increase of 325 bps, and 10.5 per cent for the 2022 ones, an increase of 225 bps, the term sheet showed.

The effective yields were even higher as the bonds were sold below par.

China's property developers have been very active in the bond markets in the past few weeks, seeking to take advantage of better market conditions just as they face almost US$100 billion in maturing debt both onshore and offshore this year, according to Refinitiv data.

Investors shied away from junk-rated debt last year as a steep sell-off in markets made deals hard to complete and forced some companies to offer to pay double-digit yields for two-year paper.

Evergrande itself repriced the market in late October when it sold US$1.8 billion of bonds with coupons as high as 13.75 per cent.

The order book for the latest sale reached US$4 billion, according to a banker on the deal.

But investors now see value in China's junk bonds given the higher yields.

"We are upbeat about low-rated, high-yield and short-term duration bonds which benefit from looser liquidity and when private enterprises' financing difficulties are eased," said Freddy Wong, fixed income chief investment officer in China and portfolio manager at Fidelity International.

CEB International, China CITIC Bank International, Credit Suisse and UBS were joint global coordinators for Evergrande's bond sale. REUTERS