Evergrande boss' US$1b bet on firm's bonds pays off

Hong Kong

IT MIGHT have seemed like a bold move when the billionaire founder of China Evergrande Group spent US$1 billion of his own money buying the company's bonds five months ago. Now, his bets are handing him handsome returns that beat many asset classes.

Hui Ka Yan, who is chairman at Evergrande, bought more than half of the company's US$1.8 billion bond offering in October, signifying his "support to and confidence in the Group" when some of its dollar notes had plunged to unprecedented lows due to concern over its debt.

The purchase, unusual for an owner of a Chinese property developer, proved to be rather lucrative. The 2022 and 2023 notes have surged to 109.6 and 110.6 cents on the dollar respectively after Mr Hui purchased US$500 million of them each at par. His notes gained 17 per cent and 18 per cent respectively on the two tranches, according to Bloomberg-compiled data.

By comparison, high-yield dollar bonds from the country's real estate sector have returned 13 per cent over the same period, according to an ICE BofAML index.

The dividend yield on Evergrande shares was less than 5 per cent in the past 12 months. Mr Hui said he hasn't sold any of the US$1 billion bonds he bought in October when asked by Bloomberg in an earnings press conference in Hong Kong on Tuesday.

Evergrande's dollar bonds, along with its peers', benefited from a return of investor confidence at the beginning of this year on their cheap valuations and the stimulus measures from Chinese authorities.

Cities in the country have introduced various easing measures including relaxing price curbs since late last year to boost the property market.

Some analysts see more room for China builder dollar bonds to rally further as investors are still bullish on them.

"There could still be some tightening in the yield to maturity for Chinese developers in general, including Evergrande," said Cheong Yin Chin, an analyst at CreditSights.

Shares of China's second-largest developer by sales have also risen 11.5 per cent, underpinned by expectations of its earnings growth. Evergrande, which is the most indebted developer in the country, announced a 93 per cent jump in core profit for 2018, beating estimates. Yet it has a US$17 billion funding challenge this year.

Mr Hui, the third-richest person in China, has collected US$3.6 billion pre-tax dividends since Evergrande's listing, according to the Bloomberg Billionaires Index. His net worth increased by 10.9 per cent since the beginning of this year to US$35.7 billion as at March 27. BLOOMBERG