Country Garden Dollar Bonds Slip on First Day Amid China Bank Stress Tests

Dollar bonds sold by Country Garden Holdings Co., the China developer controlled by billionaire Yang Huiyan, fell on their first day of trading after a regulator told banks to gauge the risk of a plunge in property prices.

Country Garden sold $400 million of 10.5 percent, five-year notes yesterday priced at 99.052 cents on the dollar to yield 10.75 percent, according to data compiled by Bloomberg. They slipped to 98.6 cents to yield 10.9 percent as of 4:40 p.m. in Hong Kong today, according to Credit Agricole CIB.

“Country Garden bonds are a victim of expected supply and tough conditions in the onshore property market,” said Brayan Lai, a Hong Kong-based credit analyst at Credit Agricole CIB. They didn’t lose more because “a substantial part of policy action has already been priced into property bonds.”

The China Banking Regulatory Authority told lenders to stress test for home prices dropping as much as 60 percent in some cities and warned some developers may run out of cash, a person familiar with the matter said. China has tightened real- estate lending and cracked down on speculation since mid-April on concern last year’s record $1.4 trillion of new loans fueled a property bubble that could lead to a surge in delinquent debts.

Country Garden raised $550 million in April from 11.25 percent notes due 2017 priced to yield 811 basis points more than similar-maturity Treasuries, Bloomberg data show. The spread widened to a record 1,153 basis points on May 25 before narrowing to 930 basis points, Nomura Holdings Inc. prices show.

Sales Jump

The company said on July 4 that property sales rose about 50 percent in the first half. Prices in 70 Chinese cities dropped 0.1 percent in June from the previous month, the statistics bureau said on July 12.

Country Garden, which has property in provinces including Guangdong, Guangxi, Anhui and Jiangsu, should be “more resilient” to a fall in prices than developers concentrated in cities such as Beijing and Shanghai, according to Lai. “Credit spreads have tightened and there’s definitely a window for high- yield companies to issue debt,” he said.

Shimao Property Holdings Ltd., controlled by billionaire Xu Rongmao, sold $500 million of seven-year, 9.65 percent notes on July 27 at a spread of 718 basis points more Treasuries, according to Bloomberg data.

Renhe Commercial Holdings Ltd., a developer of underground shopping centers in China, began meetings with investors in Asia and Europe yesterday, according to a person familiar with the matter. KWG Property Holdings Ltd., a Hong Kong-based developer, is also arranging investor talks in Asia, Europe and the U.S., another person said.

Attractive Coupons

“Issuers are coming back to the market looking for opportunities,” Keith Chan, a credit analyst at HSBC Holdings Plc, said in a telephone interview from Hong Kong today. “If there’s no imminent default risk in these instruments, and as long as the coupon is high enough, it attracts investors.”

Most Chinese developers cleared their unsold inventory last year and started to increase construction, adding to their funding needs, Feng Zhi Wei, a senior credit analyst for Standard Chartered Plc in Singapore, said in a note today.

While China’s property market won’t collapse, a “correction is imminent,” Feng wrote. A price correction of 30 percent is probably acceptable to the government, established developers and property owners, she said.

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