Shimao Markets Dollar Debt as Junk Note Sales Reach 1-Year High

Shimao Property Holdings Ltd. is marketing a dollar-denominated bond after high-yield offerings in Asia reached the most in almost a year last week.

The Hong Kong-based real estate developer is offering seven-year securities to yield about 8.375 percent, a person familiar with the matter said, asking not to be identified because the matter is private. Junk note sales in Asia outside Japan denominated in either dollars, euros or yen reached $2.25 billion last week, the highest since the five days ended Feb. 1 last year, according to data compiled by Bloomberg.

Chinese property developers have dominated the high-yield market in the U.S. currency this year, with sales from China Aoyuan Property Group Ltd., Wuzhou International Holdings Ltd. and Guangzhou R&F Properties Co. since Dec. 31. Yields on speculative-grade debt in Asia fell to a one-week low of 7.48 percent on Jan. 13, according to JPMorgan Chase & Co. indexes.

“We expect more issuance from China this year, which will drive the high-yield bond market,” said Barclays Plc’s Singapore-based head of Asia credit research Krishna Hegde. “With domestic rates increasing, many Chinese businesses will find it attractive to borrow money offshore instead.”

Borrowing costs in China rose to a record 5.36 percent on Jan. 7, according to Bank of America Merrill Lynch indexes which cite data going back to 2004.

Highest Junk

Shimao Property’s existing 6.625 percent $800 million notes due January 2020 traded at a yield of 7.76 percent yesterday, Bloomberg-compiled prices show. Fitch Ratings Ltd. is expected to rank the new bonds at its highest junk status of BB+.

The company, which develops large-scale residential projects, hotels and other commercial buildings in mainland China, has about $3.4 billion of bonds and loans outstanding, according to Bloomberg-compiled data. China’s private-housing market, which only came into existence in 1999, reached 4.4 trillion yuan ($728 billion) in sales last year, the data show.

High-yield bonds hold ratings lower than BBB- from Standard & Poor’s and Fitch, or the equivalent Baa3 from Moody’s Investors Service.

The cost of insuring corporate and sovereign bonds against non-payment in Asia climbed to a two-month high today, according to traders of credit-default swaps.

The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose 2 basis points to 140 basis points as of 8:26 a.m. in Hong Kong, Australia & New Zealand Banking Group Ltd. prices show. The gauge was last at a higher level on Nov. 13, according to data provider CMA.

Japan Risk

The Markit iTraxx Japan increased by 4.5 basis points to 78 basis points, according to Citigroup Inc. prices as of 9:26 a.m. in Tokyo. The measure is poised for its highest close since Dec. 6, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the private market. Japan’s markets were closed yesterday for a holiday.

The Markit iTraxx Australia index advanced by 1.5 basis points to 101.5 as of 11:28 a.m. in Sydney, according to Westpac Banking Corp. prices. The benchmark is set for its highest close since Dec. 17, after having risen for the past two weeks, according to CMA.

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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