Chinese property developers rush to print private Panda bonds

[HONG KONG] Overseas-incorporated Chinese property developers are joining the rush to issue Panda bonds in an effort to lock in more attractive funding costs in China's onshore market.

Hong Kong-listed Country Garden Holdings, incorporated in the Cayman Islands, led the way at the end of last year with an offering of Rmb1bn five-year onshore bonds via an offshore entity.

Notably, the paper was issued on the China Securities Regulatory Commission-supervised stock exchange market, rather than the interbank bond market, where five previous Panda bonds, including a sovereign offering from South Korea, were printed after getting the nod from the People's Bank of China.

Country Garden also chose a private placement for its debut Panda offering. The format allowed swifter execution as it does not require regulatory clearance and is not subject to a debt cap. "The Shanghai Stock Exchange has been encouraging innovations in the capital market, and the feedback we got from them is that private placement of Pandas is doable, but public offerings are not viable for now as a public offering has to go through the CSRC," said a Shanghai-based bond underwriter.

The CSRC removed many of the barriers to corporate bond financing last year. As a result, private placements of corporate bonds only require pre-registration with stock exchanges.

Unlike public offerings, private placements have no issuer profitability requirement and are exempt from a debt-ratio restraint, which limits outstanding debt to 40 per cent of an issuer's net assets.

Flurry of issues The relaxation of fundraising restrictions and sustained monetary easing triggered a flurry of onshore bond issues from the property sector last year. Country Garden raised Rmb14bn from bond offerings through one of its onshore subsidiaries, Zengcheng Country Garden Property Development, in 2015.

The recent liberalisation of Panda bonds reinforced the appeal of onshore financing for Chinese developers. "We expect to see more Chinese developers, which operate onshore, but are incorporated offshore, issue Panda bonds in the stock-exchange markets to take advantage of cheaper funding costs," said a Beijing-based underwriter, who handled Country Garden's trade.

With the support of ample liquidity, onshore renminbi bonds trade at much lower yields than are available offshore. Benchmark 10-year Chinese government bonds were traded around 2.85 per cent on Friday. In the offshore renminbi market, similar government securities were quoted at 3.647-3.572 per cent.

Country Garden sold its first five-year Panda bonds for 4.99 per cent. Its offshore 2021 US$750 million notes were quoted at 6.1/6.5 per cent on Friday on Tradeweb.

Apart from Country Garden's registered 20 billion renminbi Panda bond plan with the SSE, at least three more offshore incorporated Chinese developers are working on such issues.

Shimao Property Holdings plans to raise up to 20 billion renminbi from a private placement of Panda bonds on the Shanghai Stock Exchange. The first batch will fetch no less than 2 billion renminbi and will be issued in mid-January with a tenor of five years, according to a syndicate banker with China Securities, the sole lead underwriter on the placement.

Powerlong Real Estate Holdings, also incorporated in the Caymans, has got approval to raise 6 billion renminbi through a private placement of corporate bonds via the SSE.

Hopson Development Holdings, incorporated in Bermuda, has applied for a private placement of Rmb15bn corporate bonds through the SSE.

IFR