COUNTRY REPORT CHINA› QPIG MAKES LATE PAYMENT
Cash-strapped QINGHAI PROVINCIAL INVESTMENT
GROUP made a coupon payment on US$300m
7.25% bonds last Friday, a day after missing
the deadline.
The bonds issued on February 22 2017
are set to mature on February 22 2020.
A spokesman at the company attributed
the late payment to technical problems.
In February, the company also made a
late payment of the coupon on the bonds,
which it also blamed on technical issues.
S&P downgraded its long-term foreign
issuer’s rating from B+ to CCC+ in February,
citing the company’s weakening liquidity.
The troubled aluminium producer, in
which the provincial government holds a
69.3% stake, has been trying to shrug off
debt concerns by taking cheap money from
China Development Bank, extending the
maturity of its loans, and seeking a stake
sale to State Power Investment Corporation.
› S&P DOWNGRADES BHCI
S&P on August 22 downgraded TIANJIN BINHAI
NEW AREA CONSTRUCTION & INVESTMENT GROUP’s
issuer rating and its guaranteed notes to
BBB– from BBB, reflecting its expectation
that the Binhai district government will
face a significant debt burden over the next
two years.
The rating outlook is negative because of
the uncertainty over financing conditions
among Tianjin’s state-owned enterprises and
the city government’s reaction should the
debt crisis escalate, the rating agency said.
The rating action came after S&P
placed the ratings under criteria
observation following the publication of
its “Methodology for Rating Local and
Regional Governments Outside of the US”
criteria on July 15, in which its assessment
of a government’s debt burden is weighted
more heavily in its individual credit profile.
BHCI was established in 2006 by the
Tianjin municipal government to manage
major projects in the Tianjin Binhai New
Area. The ratings on BHCI are closely
aligned with S&P’s assessment of the credit
profile of the Binhai government, which
fully controls the company.
The local government financing vehicle
was forced in July to postpone a three-year
US dollar bond after concerns over the
finances of its local government parent led
to a rare snub from international investors.
S&P expects the Binhai government’s
recent countercyclical fiscal measures andeconomic reforms to strain its budgetary
performance as well as add to its debt
burden.
S&P said it could further downgrade
BHCI if it assesses that the creditworthiness
of the Binhai government has significantly
deteriorated or the likelihood of
extraordinary government support for
the company has significantly diminished
because of a change in the government’s
strategies and priorities, or in the local
government’s support policy.
It could also lower the rating on BHCI
if the company’s liquidity and refinancing
risks heighten or the Tianjin government
does not proactively respond to financial
distress at other high-profile SOEs.
Meanwhile S&P on the same day affirmed
its ratings on two Tianjin SOEs. It affirmed
TIANJIN INFRASTRUCTURE CONSTRUCTION & INVESTMENT’s
BBB+ and TIANJIN RAIL TRANSIT GROUP’s A– ratings,
both with negative outlooks.
S&P said negative outlooks on the two
SOEs reflect Tianjin’s rising challenges over
the next two years.› SHANDONG GUOHUI IN QUICK RETURNSHANDONG GUOHUI INVESTMENT, rated Baa2/BBB+
(Moody’s/Fitch), has priced US$300m three-Yanlord thrives amid low property supply
Bonds Big new issue premium supports developer’s large issue sizeYANLORD LAND GROUP, rated Ba2/BB (Moody’s/
S&P), took advantage of recent thin supply
from the Chinese property sector to print a
US$400m bond that drew robust demand
and rallied in the aftermarket.
The deal had the biggest size and longest
tenor (if the notes are not called) of the four US
dollar bonds from the sector so far this month.
Yanlord on August 21 priced the 4.5-
year non-call 2.5 senior notes at par to
yield 6.80%, the tight end of final guidance
of 6.85% (+/-5bp) and well inside initial
guidance of 7.10% area, after drawing over
US$1.5bn of final orders from 115 accounts.
“Lack of supply from the property sector
recently due to the volatile market was one of
the reasons for the strong demand,” a banker
on the deal said. “The issuer chose a good
window to come to the market.”
August is traditionally a quiet month for
new bond issuance because of the summer
holidays and the blackout period for the
announcement of interim results. Of the other
prints from the sector this month, Central
China Real Estate, Excellence Commercial
Properties and Zhenro Properties Grouppriced deals ranging from US$110m to
US$300m, all with three-year tenors.
Yanlord drove demand by offering a new
issue premium of about 25bp, according to
the banker.
“It is a name with better quality in the
sector with good corporate governance. It is
not a frequent issuer and only issues bonds
once a year,” the banker said.
Yanlord is favoured by private banks, which
showed strong support for the latest deal.
Asia took 94% of the notes and Europe
6%. By investor type, 57% went to fund
managers and insurers, 34% to private
banks, and 9% to banks, corporates and
discretionary portfolio management.
Research firm CreditSights said on
Wednesday it saw fair value at 6.75%
based on the existing Yanlord curve, after
adding 60bp to its 6.75% 2023s for a
one-year extension and 25bp for a further
deterioration in credit profile as a result of
the new bond. The 6.75% 2023s were bid at
5.90% ahead of the announcement of initial
price guidance for the new issue.
The newly priced bonds were bid up to101.00/100.125 or a yield of 6.54%/6.51%
on the morning of August 22, according to a
trader.
The Reg S issue has expected ratings of
Ba3/BB– (Moody’s/S&P).
Yanlord Land (HK) is the issuer of the notes
and the Singapore-listed parent company is
the guarantor.
Proceeds will be used for project
development and acquisitions, and for
general corporate purposes.
CreditSights expects the deal to put more
pressure on Yanlord’s gearing and leverage
ratios as the proceeds from the new bond will
most likely be used for expansion rather than
debt repayment.
Moody’s has forecast Yanlord’s debt
leverage — as measured by revenue/adjusted
debt — will gradually move towards 60%
over the next 12-18 months from 33% in the
12 months ended June 2019.
DBS Bank, HSBC and Standard Chartered
Bank were joint global coordinators, joint
bookrunners and joint lead managers on the
transaction.
CAROL CHAN