Singapore Condos for Mainland Rich Funded by Bonds: China Credit

Faced with curbs on luxury residences and fundraising at home, China’s biggest mainland-listed property developer is building apartments for wealthy Chinese in Singapore and raising debt in the city’s currency.

China Vanke Co., which also plans developments in San Francisco and Hong Kong, sold S$140 million ($113 million) of four-year notes with a 3.275 percent coupon on Oct. 31, according to data compiled by Bloomberg. That’s a premium on the average 1.8 percent coupon for Chinese bonds in the currency. The yield on the company’s five-year U.S. dollar bonds fell 54 basis points since June, to 4.14 percent on Nov. 5, data compiled by Bloomberg show.

Vanke has teamed up with Keppel Land Ltd. for the development of 726 flats in east Singapore as foreign Chinese buyers have emerged as the top overseas buyers of residential property in the city-state this year. Mainland builders are accelerating projects abroad as people from the world’s most-populous country seek access to education, healthcare and citizenship abroad, said London-based broker Savills Plc.

“Chinese developers have been looking offshore for funding for many years now but there’s more impetus to do it now after the government turned the credit taps off,” said James Macdonald, Shanghai-based head of research at Savills China. “Being able to turn to overseas bond markets is important to Chinese developers as these markets are not tied to government policy and prices are dictated by the market.”

Property Curbs

Regulators across China have sought to clamp down on property prices, tightening lending requirements and boosting minimum down payments for additional home purchases in an effort to reduce the risk of a bubble destabilizing the financial system. The People’s Bank of China in June engineered a cash crunch that saw short-term funding rates soar amid efforts to curb loose lending practices that have undermined bank balance sheets.

The yield on the government’s benchmark 10-year bonds added three basis points to 4.22 percent and has jumped 64 basis points this year. The yuan, which gained 2 percent so far in 2013, was little changed at 6.0968 per dollar.

“Overseas markets are attractive as there is less government interference and stronger rule of law, which makes them more transparent and predictable,” said Macdonald, adding that currency diversification is another driving factor behind investment abroad.

Global Push

Dalian Wanda Group Corp., founded by China’s richest man Wang Jianlin, is constructing a luxury hotel and apartment building in England. Its unit, Dalian Wanda Commercial Properties Co., is considering selling a U.S. dollar bond and met with investors in London this week, according to people familiar with the matter.

Chinese and Hong Kong developers have sold close to $20 billion of debt in dollars this year, making up about 17 percent of the market in Asia outside Japan. This compares to 11.2 percent last year.

Hong Kong-listed Evergrande Real Estate Group Ltd. is marketing an addition to $1 billion of 2018 notes it sold last month. The company will use the money for refinancing existing debt, it said in a filing to Hong Kong’s stock exchange today.

Vanke is targeting foreign markets where Chinese buyers are active, including San Francisco, New York, Boston and Singapore, President Yu Liang said in August.

Deposits Boosted

The move comes as authorities in its home town of Shenzhen, a city that borders Hong Kong, boosted minimum down payments for second homes to 70 percent and reiterated a ban on loans for anyone who owns two or more properties. Vanke’s shares dropped 1 percent to 9.11 yuan as of 10:02 a.m. in Shenzhen today and are down 18 percent for the year.

The developer signed a deal with Tishman Speyer Properties LP, owner of the Rockefeller Center, in February to develop two residential towers in San Francisco. In April, a unit jointly won a HK$3.43 billion ($442 million) bid for a site in Hong Kong that it will build with New World Development Co., controlled by the family of billionaire Cheng Yu-Tung, Hong Kong’s third-richest man.

Borrowing costs for companies in Singapore dollars reached a four-month low of 3.087 percent on Oct. 30, according to HSBC Holdings Plc indexes.

China Vanke’s U.S. dollar note sold in March pays about 266 basis points more than three-month dollar Libor, compared to its Singapore dollar debenture which pays about 226 basis points more than Libor. Third-quarter profit at the builder rose 18 percent to 1.6 billion yuan ($262 million), from a year earlier, the company said in an Oct. 29 filing.

‘Immediate Benefit’

“Diversification of funding would be the obvious and immediate benefit although in this case Vanke does have projects in Singapore,” said Clifford Lee, head of fixed income at DBS Group Holdings, who helped market the company’s notes and is the top arranger for Singapore dollar bonds. “The Singapore dollar market continues to show that it is relevant and open for foreign issuers with a strong credit story.”

China’s home prices rose in all but one of 70 cities surveyed in September as the government refrained from introducing more nationwide property tightening policies that would hinder economic growth. It was the fifth month in a row that prices gained in 69 cities.

Gross domestic product will expand 7.6 percent this year, according to the median estimate of 52 economists surveyed by Bloomberg last month.

The note by Vanke, which holds long-term investment-grade credit ratings from Moody’s Investors Service, Standard & Poor’s and Fitch Ratings Ltd., is only the third from a non-bank affiliated Chinese company to be sold in Singapore.

Other Issues

Beijing-based waste treatment company Hankore Environment Tech Group Ltd. sold S$50 million of 2015 debentures for a yield of 7.5 percent in July, the data show. Central China Real Estate Ltd. was the last Chinese real estate developer to sell Singaporean debt. The firm sold S$175 million of bonds due 2016 in April 2012 at 10.75 percent, the highest coupon ever in the Singaporean market.

“China Vanke’s deal seemed well supported by real-money investors as there is a low supply of investment-grade Chinese borrowers in the Singapore dollar market,” said Adeline Tan, Singapore-based analyst at UOB Asset Management Ltd., which managed S$41.5 billion at the end of August. “This may lead to other Chinese companies coming to the market, especially if they are interested in diversifying their debt profile.”

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