Chinese Developers Market Dollar Notes Amid Surge in Home Prices

Developers Cifi Holdings Group Co. and Greentown China Holdings Ltd. (3900) are marketing dollar-denominated bonds four months after selling debt as new home prices in Beijing, Shanghai, Guangzhou and Shenzhen surge.

Cifi, the Hong Kong-listed developer, is offering five-year debentures to yield about 9.25 percent while Greentown is marketing subordinated perpetual securities at a yield of about 9.25 percent also, people familiar with the matters said. China South City Holdings Ltd. (1668), the logistics company in which Tencent Holdings Ltd. said last week it would invest, is marketing five-year bonds to yield about the high 8 percent area.

The cost of property in cities the Chinese government considers first tier is escalating in the absence of broader curbs. New home sales exceeded $1 trillion for the first time last year, the National Bureau of Statistics said today, after figures released last week showed new home prices climbed 20 percent in Guangzhou and Shenzhen in December from a year earlier. Premier Li Keqiang hasn’t imposed additional nationwide measures to cool the market, instead leaving it up to individual cities to impose their own restrictions.

“Good reports from China’s property sector are another plus to an overall positive story emerging from the country,” said Steve Wang Wei, the Hong Kong-based head of fixed-income research at BOCI Securities Ltd., a unit of China’s fourth-largest bank. “Developers are the largest issuers out of China so we’d expect quite a few more to come to the dollar bond market.”

Chinese Dominance

Cifi and Greentown were two of the first companies in Asia to sell speculative-grade U.S. currency bonds in September after a two-month junk issuance hiatus, according to data compiled by Bloomberg.

Cifi sold another $225 million of its notes due 2018 on Sept. 11, while Greentown raised $300 million selling 8 percent bonds due 2019 five days later, the data show.

Li’s predecessor Wen Jiabao stepped up a three-year campaign to cool the market in March, ordering higher down payments and interest rates for second-home loans in cities with excessively fast price gains.

Chinese and Hong Kong-based borrowers sold a record 56 percent of Asian offerings denominated in dollars last year, Bloomberg-compiled data show. Yuzhou Properties Co. (1628), which according to its website is the biggest developer in the coastal city of Xiamen, sold $300 million of 8.625 percent notes due 2019 on Jan. 17.

Credit Risk

Almost 90 percent of the bonds went to investors in Asia while 60 percent were placed with fund managers, another person familiar with the matter said, asking not to be identified because the details are private.

The cost of insuring corporate and sovereign bonds against non-payment in Asia-Pacific rose today, according to traders of credit-default swaps.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increased 2 basis points to 141 basis points as of 8:33 a.m. in Hong Kong, Standard Chartered Plc prices show. The gauge is set to close at its highest level since Jan. 14, according to data provider CMA.

The Markit iTraxx Japan index climbed 1 basis point to 78.5, according to Citigroup Inc. prices as of 9:34 a.m. in Tokyo. The measure rose 4.1 basis points last week for a second straight week of increases, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market.

The Markit iTraxx Australia index rose 1 basis point to 100 basis points as of 11:13 a.m. in Sydney, Westpac Banking Corp. prices show. The benchmark, which ranged from 96.7 to 101.4 this month, is on track for its third straight day of increases, CMA data show.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.

To contact the reporter on this story: Tanya Angerer in Singapore at tangerer@bloomberg.net

To contact the editor responsible for this story: Katrina Nicholas at knicholas2@bloomberg.net

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