UPDATE 1: 12:40 a.m. ET 2/21/2023: At least two banks are organizing post-earnings non-deal roadshows for Singaporean real estate developer Yanlord Land Group in March, according to two sources familiar with the matter.
The sessions, hosted by UBS and Standard Chartered Bank, will be to update investors on Yanlord’s financial results, sources added.
As
reported, Yanlord is among the real estate developers recently approached by underwriters to potentially issue new USD notes.
Yanlord did not reply to an emailed request for comment.
Original Story 4:12 a.m. UTC on Feb. 9, 2023Investor Demand, Bank Appetite Drive Talks for New USD Notes for Select China Real Estate Developers on Reopening Economy, Successful Wanda Issues; Hopson, Seazen Among Cos. in Talks About Offshore Issues; Negotiations Pivot Around Pricing, Collateral TermsFollowing China’s economic reopening, and Dalian Wanda Commercial Management’s
success with two USD high-yield bond issues, a number of Chinese real estate developers are in talks for potential new offshore USD notes, as investors and banks alike look for a recovery in a high-yield bond market which shrank to a handful of new issues in 2022 in the wake of multiple defaults and ongoing restructurings in the sector, said multiple sources.
In January, Dalian Wanda Commercial Management issued a series of
$400 million two-year notes, with pent up demand from investors leading to the second
$300 million three-year issue this week, which saw books at around $900 million. Those two issues, coming within a month of each other, have shown appetite for China real estate related paper, and have been widely viewed as a “reopening trade” for high-yield bonds for developers.
Companies including Road King Infrastructure, Hopson Development Holdings, Seazen Group, Shui On Land and Yanlord Land Group have all recently been approached by underwriters for potential new issue discussions, according to the sources.
Driving the demand is an overall buoyancy following China scrapping its Covid Zero policy and reopening its border at the end of 2022, and the U.S. Federal Reserve slowing the pace of its interest rate hikes, and
even pointing to a pause in hikes in May. Locally too, Chinese regulators have released a slew of new policy measures to stabilize the real estate sector, such as the “
16 Point Rescue Plan” and the “
three arrows” program, giving investors confidence that critical government support exists.
The overall buoyancy led to a dramatic tightening in spreads on Chinese real estate developers bonds in the early part of 2023, but uncertainty remains as an increase in developers’ contracted sales is yet to emerge.
Reorg’s compilation of monthly contracted sales for 45 China real estate developers with offshore USD notes, shows contracted sales dropping year over year for the eighteenth month in a row in December.
The median year-over-year decline in contracted sales and contracted sales area are 63.3% and 61.9% respectively, worsening from the 59.9% and 57.6% year-over-year declines in November, Reorg reported.
And while onshore RMB issues have been sustained by the raft of supportive policy changes, the offshore USD high yield market for China’s real estate developers - which at its peak in around 2019 was estimated at around $80 billion - has yet to return.
Demand for new USD issues is in part driven by investors, leading banks to approaching potential issuers for deals, sources said. But for actual issues to emerge, both sides have to agree on pricing, potential asset pledges, and the relevant issuer has to secure regulatory quota.
Potential Issues
As
reported, Road King’s new issue talks have obtained a more advanced stage than others, with the company holding non-deal roadshows for potential new notes. However, no deal has yet emerged, in part due to a mismatch on pricing expectations, with investors asking for sub-12% pricing and the company pushing for high single-digits.
Hopson Development also gauged interest for a potential new series of two-year notes at mid-teens pricing, according to one of the sources, who added that the terms may change as talks progress.
For other developers, including
Longfor Group, issuers are waiting for a better market window, as investors expectations on pricing under current market conditions is seen as too high compared to issuers’ average financing costs. In November, Longfor successfully
issued RMB 2 billion three-year medium-term notes with a 3% coupon.
Shui On Land, Seazen, Hopson and Yanlord declined to comment.
Reorg’s coverage of China Real Estate is
HERE.