FRONT STORY ASIA-PACIFIC
Property deals roil China high-yield
Recent offshore financings from Evergrande, Kaisa highlight lack of support
Bonds in property sector tumble to record lows
Offshore bonds from China’s property
sector tumbled to record lows last week
after weak new issues from KAISA GROUP
HOLDINGS and CHINA EVERGRANDE GROUP repriced
the market and left investors worrying
about further supply before the end of the
year.
A bizarre tap of Kaisa’s 7.875% 2021s on
October 25 – at a cash price 13 points above
the secondary market – and a US$1.8bn
three-tranche offering from Evergrande on
October 30 at coupons of up to 13.75% piled
more pressure on an already weak market.
2ATHERûTHANûCALMûRElNANCINGûFEARS û
Kaisa’s tap sent the yield on its 9.375% dollar
BONDSûDUEûûSOARINGûTOûAûRECORDûOFû û
while Evergrande’s 7.5% 2023s spiked to
13.3%.
Higher-rated peers including Country
Garden and Agile Properties saw yields on
their debt surge 50bp–100bp last week to
over 9.5%.
“It can be summarised as killing the
MARKET vûSAIDûAûHEDGEûFUNDûMANAGERûAFTERû
the Evergrande deal. “The level just freaked
people out and left us wondering whether
Evergrande is that desperate to come and
pay that much in such a weak market. That
CAUSEDûITûTOûREPRICEûEVERYTHINGv
Investors who spoke to IFR questioned
HOWû+AISAûWASûABLEûTOûlNDûTAKERSûWHOû
WOULDûPAYûAûPREMIUMûOVERûSECONDARYûLEVELS û
particularly in a lacklustre market for
Chinese high-yield bonds.
A source with knowledge of the situation
explained that two investors sought
additional debt at higher cash prices
because it was hard to buy that much in
SECONDARYûTRADING ûBUTûONEûOFûTHEûINVESTORSû
said that was not true because the bonds
WEREûhOFFEREDûEVERYWHEREv
The source added that the investors were
buyers who are familiar with the issuer. The
COMPANYSû(ONGû+ONGûOFlCEûDIDûNOTûRETURNû
calls for comment.
Another Hong Kong-based investor said
HEûWASûLESSûCONCERNEDûABOUTûTHEûTAPûPRICE û
as the issuer is not obligated to disclose it.
He questioned whether sensitive
information had leaked during deal
SOUNDING ûSINCEûTHEREûWEREûMULTIPLEûSELLERSû
of Kaisa’s bonds before the tap was
announced. The source did not comment.
Evergrande paid about 200bp–250bp of
new issue premium to issue US$1.8bn of
bonds and sold most of the paper to its own
CHAIRMAN ûFURTHERûILLUSTRATINGûTHEûDEARTHûOFû
institutional appetite (see Top News for
more).
“The Evergrande deal itself is not a
DISASTER ûBUTûITûDIDûMOREûDAMAGEûTOûTHEû
MARKET vûSAIDûANOTHERûHEDGEûFUNDû
manager. “The whole market is in a mindset
where everyone wants to just mark things
LOWERv
Certain bonds issued by Kaisa Group
(OLDINGS û!GILEû'ROUP û"EIJINGû0ROPERTIES û
#HINAû3OUTHû#ITY û,OGANû0ROPERTY û#OUNTRYû
'ARDEN û#HINAû!OYUANû0ROPERTIES û9UZHOUû
Properties and Central China Real Estate hit
RECORDûLOWSûONû4HURSDAYûANDû&RIDAY û
ACCORDINGûTOû2ElNITIVûDATA
+AISASûû*UNEûS ûûSûANDû
9.375% 2024s lost 7–8 points in the past two
WEEKS ûWHILEû#OUNTRYû'ARDENSû*ANUARYûANDû
September 2023s fell more than four points
DURINGûTHEûSAMEûPERIOD û2ElNITIVûDATAûSHOW
)NûTHOSEûTWOûWEEKS û9UZHOUû0ROPERTIESû
ûSûALSOûDROPPEDûOVERûûPOINTS ûWHILEû
China Aoyuan’s 5.375% 2022s sank more
than four points. Agile Properties’ 5.125%
SûKNOCKEDûOFFûCLOSEûTOûlVEûPOINTSThe sector’s losses were more pronounced
versus high-yield peers in the US. The average
yield on Asian high-yield US dollar bonds
MATURINGûINûTHREEûANDûlVEûYEARSûHAVEûSPIKEDû
BPûANDûBPûRESPECTIVELYûSINCEû/CTOBERû û
ACCORDINGûTOû2ElNITIVûDATA ûAûMUCHûHIGHERû
jump than the 18bp and 28bp increase seen
for corresponding US high-yield bonds.
Secondary levels showed hints of a
RECOVERYûONû&RIDAY ûWITHû%VERGRANDESûNEWû
2023s rebounding more than a point to a
cash price of 99 and yield of 14%.SUPPLY PRESSURE
(OWEVER ûAûBANKERûAWAYûFROMûTHEû
Evergrande deal reckoned that the Chinese
high-yield market would struggle to bounce
back meaningfully by the end of the year as
some investors close books earlier than
usual given the poor performance in
property high-yield bonds.
The banker added that there were dozens
of issuers still left with outstanding
regulatory quotas.
h)SSUERSûAREûSTILLûWILLINGûTOûPAYûUP ûBUTûAû
deal won’t work even if they pay more. At
THISûPOINT ûWEûDONTûHAVEûANYûMOREûOPTIONSv
With issuers now having to pay double-
digit yields to complete deals even at short
TENORS ûINVESTORSûSAYûTHEYûAREûNERVOUSûTHATû
tight funding markets could trigger an
increase in defaults.
The second hedge fund manager said he
wanted issuers to proactively de-lever both
OFFSHOREûANDûONSHORE ûBECAUSEûTHEREûISûTOOû
much paper and not enough buyers.
h"EFORE ûIFûSECONDARYûCHEAPENEDûUP û
INVESTORSûWOULDûMEETûTHEMûHALFWAYû"UTûNOW û
the market is so battered that everything
MOVEDûTOûWHEREûTHEûNEWû;%VERGRANDE=ûDEALûIS û
WHICHûISûLIKEûnûPOINTSûLOWERv
4HEûlRSTûINVESTORûSAIDûTHATûTECHNICALû
factors had deteriorated more than
FUNDAMENTALS ûSUGGESTINGûTHATûFURTHERû
policy easing in China could provide some
relief.
h4HATSûWHYûITSûREALLYûTIMEûTOûlGUREûOUTû
WHATûTOûDOûFROMûHERE vûSAIDûTHEûINVESTORû
h)TSûNOTûEASY ûBUTû)ûDONTûTHINKûWEREûFACINGû
AûCREDITûCRISISv
Frances YoonEMERGING MARKETS
China 54 Hong Kong 55 Indonesia 55 South Korea 55 Sri Lanka 58 Seychelles 58 Turkey 58 Ukraine 59
UAE 59 Brazil 60 Chile 61 Costa Rica 61 Mexico 61Source: Refinitiv Eikon8284868890929401/10/1803/10/1805/10/1809/10/1811/10/1815/10/1817/10/1819/10/1823/10/1825/10/1829/10/1831/10/1802/11/18TUMBLING
KAISA’S 7.25% JUNE 2020s (PTS)