Kaisa Group Holdings Ltd. is marketing a sale of U.S. dollar-denominated bonds, becoming the first junk-rated Chinese property developer to test the market since the government announced measures to cool house prices earlier this month.
Kaisa, based in Shenzhen, is offering five-year notes at a yield of about 9.125 percent, a person familiar with the matter said asking not to be identified because the terms aren’t set. The securities are expected to carry a B+ rating from Standard & Poor’s and B1 from Moody’s Investors Service, and proceeds will be used to partially repay dollar notes sold in 2010 and fund existing and new property projects, the person said.
China Vanke Co., the country’s largest developer, borrowed $800 million last week in its debut U.S. currency offering. The BBB S&P-rated note issue came less than a week after China announced on March 1 higher down-payment requirements and interest rates on second-home mortgages in an effort to curb house-price increases. China’s new-home prices rose for a ninth straight month in February, SouFun Holdings Ltd. said March 1.
“Austerity measures are an ongoing concern,” said Raymond Chia, the Singapore-based deputy head of credit research for Asia fixed-income at Schroder Investment Management Ltd., which managed the equivalent of $327.4 billion of assets as of Sept. 30. “However in some cases, where companies raise money for debt refinancing and subsequently reduce their cost of debt, it tends to bode better for investor sentiment as opposed to purely raising money for land acquisitions.”
Kaisa priced $650 million of five-year bonds in April 2010 at a yield of 13.5 percent, according to Bloomberg data.
The average yield junk-rated companies in Asia pay to sell debt was 6.15 percent yesterday, near a five-week low of 6.147 percent touched March 8, according to HSBC Holdings Plc indexes.
High-yield bonds, also known as non-investment grade, speculative grade or junk, hold ratings lower than BBB- from S&P and Fitch Ratings Ltd., or the equivalent Baa3 from Moody’s.
Kaisa’s sale would be its second dollar bond this year, after it issued $500 million of 10.25 percent notes due 2020 on Jan. 3. Those notes were yielding 9.584 percent as of 11:12 a.m. in Singapore, BNP Paribas SA prices on Bloomberg show.
The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan fell 2 basis points to 100 basis points as of 8:21 a.m. in Hong Kong, according to Credit Agricole SA prices. The measure is headed for its lowest close since January 2011, according to data provider CMA.
The Markit iTraxx Japan index retreated 3 basis points to 99 as of 9:10 a.m. in Tokyo, Deutsche Bank AG prices show. The benchmark is set for its first close below 100 since March 2011, 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 was little changed at 106 as of 11:12 a.m. in Sydney, according to National Australia Bank Ltd. prices. The gauge dropped for six straight business days through yesterday, when it closed at its lowest since May 2011, 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.