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Chinese Property Bond Markets Update

The Asian bond markets were quite active during the week from 6 Apr 2013 to 10 May 2013, with Chinese investors back after a three day long holidays in the previous week. The Chinese property bond market had busy sessions during the week, with three new bond issuances from the sector. Two issuances came from new visitors to debt capital markets, Poly Property Group and Yuexiu REIT. The other was a dimsum bond issuance by Greentown China. There were some rating actions in the China property sector; both Moody's and S&P have placed the ratings of SPG Land on watch for upgrade. Both these rating agencies affirmed their stable outlook for the China property sector.

Greentown China issued junk bonds while Yuexiu REIT issued investment grade bonds. Though Poly Property is an unrated credit, its credit quality is similar to that of a high BB rated credit. Greentown China issued CNY 2.5 billion 5.625% coupon bearing dimsums maturing in 3 years at par. The final pricing of the bonds was tighter than the initial guidance of 6% and revised guidance of 5.75%. BOCI, Deutsche Bank, HSBC, ICBC (Asia), and Standard Chartered were the sales managers.

Yuexiu REIT sold 5 year 3.1% coupon USD 350 million senior unsecured notes at 99.541, equivalent to spread of T+245 bps. The pricing was tightened from the company's initial guidance of T+260 bps. BOC, DBS, HSBC, and MS were the sales managers. The notes are rated Baa2 by Moody's and BBB by S&P.

Poly Property Group sold 5 year 4.75% coupon USD 500 million senior unsecured notes at par, tightened from the company's indication of 5%. The bonds are supported by a keep-well agreement by China Poly Group Corp. BOCI, Citi, Deutsche Bank, ICBC International, Royal Bank of Scotland, and UBS were the sales managers. The bond proceeds will be used for refinancing of debt and general corporate purposes.

Lai Fung Holdings has solicited consent from its bondholders to amend the terms of USD 200 million notes due 2014. The company proposes to amend restrictive covenants to get additional flexibility. Moody's said that there is no rating impact on Lai Fung's ratings from this proposed solicitation.

SPG Land plans to raise HKD 3.0 billion by issuing new shares to Greenland Holding Group, an entity wholly-owned by State-owned Assets Supervision and Administration Commission (SASAC) of Shanghai Municipal Government. Greenland's shareholding in SPG Land will be 60%. SPG Land will use the proceeds to repay bank loans and fund property projects. This transaction will improve the company's liquidity and credit profile.

Moody's expects home prices to come under pressure as investment demand will be subdued; however, it expects volumes to be supported by end user demand. S&P expects the Chinese developers to meet their annual sales targets in 2013, home prices to increase by 5%, and sales volume of large scale developers to witness 10% growth. Though the rating agencies have stable outlook for the sector, fixed income investors looking at investment opportunities in the high yield China property space should be prudent and closely track the monthly operating statistics released by Chinese real estate companies.