China Evergrande to Sell Dollar Debt as Bond Prices Plunge

(Bloomberg) -- China Evergrande Group is tapping the dollar bond market for the first time in 16 months as the country’s most indebted developer seeks to cut leverage and diversify its business.

The Guangzhou-based firm announced final price guidances on three-tranche dollar bonds Tuesday, split between two-year, four-year non-call two, and five-year non-call three at 11 percent, 13 percent, and 13.75 percent, respectively, according to a person familiar with the offering, who are not authorized to speak publicly and asked not to be identified. The notes will be used to refinance offshore debt, the person said

The bond offering comes amid a challenging backdrop. Its stock is at a 15-month low and some of its dollar bonds have
plunged to unprecedented levels amid concerns of more debt sales. The last time Evergrande came to the market was in June last year when it sold $2.3 billion, the biggest offering by a real-estate company from China then.

“Interestingly, this new deal is somewhat unexpected as the company does not seem to have pending USD notes maturities,” said Chuanyi Zhou, a credit analyst at Lucror Analytics.

“Issuance of the new notes may set back the company’s deleverage process unless fully utilized to reduce debt.”

The developer cut its 671 billion yuan ($97 billion) debt load by 8.4 percent in the first half, mostly by paying back
bank loans. However, its reliance on China’s shadow banking system has grown even as it reduces the total debt. Its high-cost trust financing accounted for about 45 percent of its total borrowing at the end of June, the largest portion since at least 2010.

Its Chairman Hui Ka Yan has “expressed interest” to buy up to $1 billion of the notes on offer currently, to “signify his
support to and confidence” in the group, the company said in a filing on Tuesday.

The refinancing nature of the new bonds “will help improve its debt maturity profile,” said Franco Leung, associate
managing director at Moody’s Investors Service. “But we note that its average cost of funding will trend upward, given the tight liquidity conditions.”

Evergrande is reportedly in talks to raise $1.5 billion this month by offering its Hong Kong office tower as collateral.

2018-10-30 04:05:48.451 GMT

By Annie Lee and Narae Kim