CapitaLand Mulls Dim Sum Bond on China Expansion: Southeast Asia

CapitaLand Ltd. Chief Financial Officer Arthur Lang wants to diversify funding by issuing yuan-denominated bonds for the first time, with China making up more than a third of assets at Southeast Asia’s largest developer.

It will be a matter of time before the company taps the offshore yuan bond market, Lang said in an interview in Singapore on Jan. 4, a day after the developer announced it will exit projects in the U.K., India and the Middle East. The developer, whose shares rose 67 percent last year, issued $400 million of 10-year bonds in September, its first U.S. dollar bond in eight years, according to data compiled by Bloomberg.

“With the size of our business, we need all types of capital sources,” the group CFO said. “It’s unwise to rely on one market so I am quite focused on diversifying into the renminbi market as well.”

CapitaLand, which announced the retirement of its founding chief executive officer and top management changes in the past year, is keen to expand its investor base by selling debt in different currencies. With 80 percent of its assets expected to be based in China and Singapore in three years, from 70 percent now, the “funding profile of the company needs to reflect the multi-geographical nature of the business,” Lang said.

“At the end of the day, you don’t want to put all your eggs in one basket,” he said.

The Singapore-based company said Jan. 3 it is reorganizing into four main units and will get out of businesses where it doesn’t have a significant presence. The stock slid 0.3 percent to S$3.86 at the close in Singapore today.

Neater Structure

“This new structure makes it a bit neater for them to see exactly how much they may need in each geography,” Wilson Liew, Singapore-based analyst at Maybank Kim Eng Research Pte, said in a phone interview. “With the new corporate entity, it will be easier for them to budget for their requirements in China and they can borrow a certain percent of funds in renminbi.”

The unrated developer received around $7 billion in orders from more than 200 investors for its first dollar-denominated bond since 2004, according to Lang. The $400 million bond paid 225 basis points more than Treasuries and was trading at 194 basis points more than Treasuries at 5:30 p.m. in Singapore today, according to BNP Paribas SA prices.

“We don’t want to squeeze the orange too tight,” said Lang. “For us, we are consistent at going back to the market, so what’s important is our reputation as a responsible issuer.”

Swapping Bonds

The company swapped the bond back into Singapore dollars and said pricing was “competitive including the all-in swap” compared with raising Singapore-dollar debt.

CapitaLand sold S$300 million ($244 million) of seven-year notes at 3.78 percent in August through subsidiary Ascott Capital Pte, according to data compiled by Bloomberg.

The company’s S$1.2 billion of bonds due in September 2016 rose to 108.25 cents to the dollar, the highest in almost three years, Barclays Plc prices show.

The Dim Sum bonds market is “definitely something worth exploring,” said Lang. “It does make sense for us given we have a big Chinese business.”

Dim Sum bond sales surged 15 percent last year, the fifth straight year of increases, according to data on its debt. Dim Sum bonds are yuan-denominated bonds issued overseas.

Global Logistic Properties Ltd. is the only non-financial Singapore-listed company to have sold offshore yuan bonds. Global Logistic, a provider of industrial buildings near seaport hubs, sold 3 billion yuan ($482 million) of five-year and seven-year bonds in May 2011.

Exploring Options

CapitaLand already has yuan-denominated loans for projects, Lang said. “Eventually when the capital markets open up, we will have to explore our options,” he said.

The new political elite in China, the world’s second-biggest economy, has signaled a commitment to opening the economy, with HSBC Holdings Plc, Europe’s biggest bank by market value and top arranger of Dim Sum bonds, expecting the currency to be convertible by 2017, according to a November report.

CapitaLand on Oct. 30 reported third-quarter profit rose 85 percent to S$148.5 million as it sold more homes and booked gains from selling assets in China. The company has been expanding beyond Singapore, with a population of 5.3 million. China made up 38 percent of the developer’s S$34.1 billion of assets as at Oct. 30, exceeding Singapore’s 32 percent, according to data from the company.

Short Windows

The developer, with about S$5 billion in cash as of Sept. 30 and S$840 million of debt due this year, doesn’t need to raise new debt. The company’s average cost of debt is around 4 percent. Still, Lang says that the fixed-income market offers very short windows of opportunity.

“There will be windows where anything sells; even snow can be sold to eskimos,” Lang said. “But there are periods when everything shuts. In this kind of situation, where windows open and close very quickly, it is very important for companies to be very nimble and quick.”

CapitaLand committed S$11 billion for new investments in 2011, an 83 percent increase from the S$6 billion made in 2010.

“The message from the restructuring is that we are an organization focused on Singapore and China, which are perhaps the two most favorable markets for real estate right now,” he said.