KWG, Fantasia Market Bonds as China Debt Gains Least Since 2008

KWG Property Holding Ltd. and Fantasia Holdings Group Co. are marketing dollar-denominated notes as debt sold by Chinese companies returned the least in five years. Bond risk in the region rose.

KWG Property, the Hong Kong-listed developer whose projects include the five-star Sheraton Huadu Resort in Guangzhou, is offering perpetual notes to yield about 10.25 percent, according to a person familiar with the matter. Fantasia, the Shenzhen-based builder of boutique residences, is selling seven-year bonds to yield about 10.875 percent, according to a separate person familiar with the matter.

Dollar bonds sold by Chinese companies returned 0.4 percent in the first two weeks of 2013, the least for the beginning of the year since 2008, according to JPMorgan Chase & Co. indexes. The notes gained the most of any corporate debt in Asia last year, the indexes show.

“Valuation came from a very cheap level at the beginning of 2012 to now what we consider to be more fair value,” said Stephen Chang, head of Asian fixed income at JF Asset Management Ltd., part of JPMorgan Asset Management Asia Inc. “We have to really do a lot of work on security selection,” he said, adding that he is still positive on bonds sold by developers.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan increased three basis point to 108 basis points as of 4:39 p.m. in Hong Kong, according to Royal Bank of Scotland Group Plc prices.

Perpetual Bonds

KWG is the second Chinese developer to sell perpetual bonds this year after Agile Property Holdings Ltd. raised $700 million from a sale of 8.25 percent notes on Jan. 11, data compiled by Bloomberg show. Agile’s bonds were yielding 8.51 percent as of 5:35 p.m. in Hong Kong, according to Credit Agricole SA prices quoted on Bloomberg.

Powerlong Real Estate Holdings Ltd., which has developed a complex in the eastern city of Fuzhou that contains a night club and disco, is also considering an issue of dollar notes, according to a person with knowledge of the matter.

“New issues will continue to be robust,” said Jeffrey Yap, the Hong Kong-based head of Asia fixed-income trading at Mizuho Securities Asia Ltd. “But it remains to be seen whether the market will remain accommodative toward new names after the recent performance of some of the first-time issuers.”

The average yield for dollar bonds in Asia fell two basis points to 4.05 percent yesterday, according to JPMorgan indexes.

Credit Risk

Korea Development Bank, based in Seoul, is marketing three-year notes at a spread of about 90 basis points over similar-maturity Treasuries and five-year notes at a spread of about 110 basis points, the person familiar with the matter said, asking not to be identified because the terms aren’t set.

Development Bank of Japan is meanwhile considering pricing as much as $1 billion of five-year securities at the low 20 basis-point area over mid-swaps, another person with knowledge of the details said.

The Markit iTraxx Japan index advanced 5 basis points to 142 as of 4:35 p.m. in Tokyo, Citigroup Inc. prices show.

The Markit iTraxx Australia index increased two basis points to 113.5 basis points as of 11:48 a.m. in Sydney, according to Australia & New Zealand Banking Group Ltd. The gauge is down 14 basis points since Dec. 31, extending a 53 basis-point drop in 2012, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

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.

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