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Chinese developer to bring Xiongan frenzy to offshore investors

Days after plans for a new economic hub south of Beijing ignited a frenzy among mainland investors, a Chinese property company with links to the zone has unveiled plans to sell overseas bonds.

[HONG KONG] Days after plans for a new economic hub south of Beijing ignited a frenzy among mainland investors, a Chinese property company with links to the zone has unveiled plans to sell overseas bonds.

China Fortune Land Development stands to benefit from the central government's Xiongan New Area project, announced on April 1. The company said on April 6 it planned to raise US$1 billion through its first offshore bond offering.

The local government has given Fortune Land, which is based in Hebei province where the special economic zone will be built, the task of developing some 500 square kilometres of the new area, or about a quarter of the total planned size.

The bond deal may take some time to get off the ground, like the planned metropolis itself, but it has already caught the attention of potential underwriters and investors.

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Fortune Land's bond offering "is probably the only chance available to gain access to Xiongan-related assets", said a Hong Kong-based credit trader at a major Chinese bank. He noted that property sales had been frozen in the area and that related stocks might already have overshot due to the frenzied investor response.

Some DCM bankers were keen to get in on the action. "We have already sent people to Hebei to approach the issuer. We definitely want to get on the deal," said a banker at a middle-sized Chinese bank.

Expectations that Xiongan will mirror the success of the Shenzhen Special Economic Zone and Shanghai Pudong New Area have fired up domestic investors, sending the shares of regional companies sharply higher. Fortune Land's Shanghai-listed shares rose more than 62 per cent, to 44.39 yuan, from April 1 to April 12. Last Thursday, the company, along with 13 others, requested a trading halt to evaluate the impact of the project on its business.

The new economic zone, situated around 100km south-west of Beijing, will take over some administrative functions of the capital and is expected to grow into an international hub.

Another DCM banker with a foreign bank said he would be sure to join in pitching for the mandate, but cautioned that marketing the credit to foreign investors could be challenging. "How will you tell the story to investors? It is not a conventional Chinese property developer and there is no comparable peer in the US dollar bond market," he said.

Fortune Land develops industrial new towns for local governments through public-private partnerships, whereas property companies that have tapped the offshore bond market in the past are mostly developers of commercial or residential buildings. "You can market the credit skewing towards Chinese local government vehicles, but then it is a privately owned company, not an SOE like all LGFVs," said the banker with a foreign bank.

Eye-catching equity gains and reports of property speculators flocking to the area with suitcases full of cash, are not expected to skew the pricing of the new bonds. "The issuer's credit fundamentally won't change immediately. It (Xiongan New Area) may be a market topic, but it won't affect the yield it needs to pay investors," said a Hong Kong-based DCM banker at a Chinese investment bank.

Another banker, who approached Fortune Land years ago to explore US dollar bond issues, pointed to the uncertainties surrounding the Xiongan project.

Fortune Land itself warned in a filing that the contracts it had secured with the local government were subject to policy uncertainties. "The company has not obtained any residential land in the area and thus no project development has been started," it said.

The issuer must also secure the approval of the National Development and Reform Commission, a main regulator of Chinese offshore debt, bankers said. "Every issuer desires to print offshore deals as early as possible in an environment of rising US interest rates, but the pace of issuance ultimately lies in the hands of NDRC," the banker said.

A Fortune Land investor relations officer told IFR that the offshore bond plan had not been registered with NDRC yet, which means months might pass before an actual offshore deal could be launched.

Fortune Land, rated AA+ (Dagong Global), last month privately placed 706 million yuan (S$143.2 million) securities backed against PPP projects in the domestic exchange market.

This was one of the first batch of PPP securitisations designed to attract private investment to government-led projects. A one-year senior tranche was priced at par to yield 3.90 per cent.