Evergrande Joins Herd of Chinese Firms Turning Onshore for Debt

(Bloomberg) -- China Evergrande Group is planning its first yuan-denominated bond offering in nearly three years on more attractive borrowing costs onshore.

Its key subsidiary Evergrande Real Estate Group Ltd. on Thursday filed a plan to issue 20 billion yuan ($3 billion)
local notes to the Shanghai Stock Exchange. China’s most indebted developer last tapped the onshore bond market in July 2016 with a three-year issue whereas it tapped the dollar bond market at least twice for a total of $2.9 billion last year.

Evergrande didn’t immediately reply to requests for a comment.

Cheaper funding in the onshore bond market is luring Chinese developers back home for financing. Local note sales by Chinese property companies in the first quarter reached 147 billion yuan, the highest in more than two years, according to Bloomberg-compiled data.

“Many of the developers are turning to onshore corporate bonds due to lower costs there, in order to refinance heavy upcoming maturities,” said Chuanyi Zhou, a credit analyst at Lucror Analytics. There are signs restrictions on local real estate bond sales are loosening, which is benefiting companies like Evergrande, she added.

Evergrande has debt maturing in 12 months or less that exceeds its cash by 114 billion yuan, its full-year report released on Tuesday showed. Even though the difference in financing costs onshore and offshore has been narrowing this year, there is still a differential of almost 3 percentage points between AA rated domestic notes and Asian high-yield bonds, a bulk of which are sold by Chinese builders.

“As for Chinese developers, the costs of borrowing for the larger-sized developers such as Longfor, Evergrande and Shimao could be cheaper onshore for an effective 3-year” tenor said Yin Chin Cheong, analyst at the CreditSights Singapore LLC. “These larger-sized developers will monitor both the onshore and offshore bond markets to see which market looks more favorable to them to issue.”

2019-03-29 05:28:30.345 GMT

With assistance from Emma Dong.