Western Asset Sees Dollar Debt Buybacks Ahead on Falling Yields

Chinese property developers with the option to repurchase dollar-denominated bonds later this year may opt to do so amid falling yields, according to Western Asset Management Co.

Shimao Property Holdings Ltd., a residential and hotel builder in China, is considering buying back its 2017 notes, which have a call option in August, as it considers a syndicated loan, Tammy Tam, an investor relations official at the company said in an interview today. Country Garden Holdings Co., controlled by China’s richest woman Yang Huiyan, has 11.25 percent 2017 securities which it may redeem at any time and from time to time on or after April 22 in whole or in part. KWG Property Holding Ltd.’s 12.5 percent bonds can be bought back in August.

Faced with dwindling funding options onshore as sales of property-related trusts drop in the wake of the collapse last month of Zhejiang Xingrun Real Estate Co., a builder in a city south of Shanghai, China’s developers are looking at more cost-effective ways of servicing their debt. Yields on non-investment grade U.S. currency notes in Asia fell to an almost 10-month low of 7.41 percent on April 10, JPMorgan Chase & Co. indexes show.

“If yields compress further, this may present opportunities for issuers such as Country Garden and KWG, which have upcoming higher-coupon callable bonds, to tap the market,” Swee Ching Lim, a Singapore-based credit analyst at Western Asset, said via e-mail. Companies can also access offshore syndicated loans to finance redemptions, he said.

Poly, KT Corp

Country Garden declined to comment on its debt plans, according to Clara Liu, a Hong Kong-based spokeswoman at iPR Ogilvy & Mather, the builder’s public relations agency. Doris Chan, a Hong Kong-based spokeswoman at KWG Property, also declined to comment.

Poly Real Estate Group Co., a home builder based in the southern city of Guangzhou, hired Citic Securities International and HSBC Holdings Plc to arrange investor meetings ahead of a possible offering in the U.S. currency, a person familiar with the matter said today.

KT Corp., South Korea’s second-biggest listed telecommunications company, is offering three-year notes at about 120 basis points more than Treasuries and five-year bonds at a spread of about 130 basis points, a person familiar with that matter said, asking not to be identified because the details are private.

Bond Risk

Bank of East Asia Ltd. is also marketing three-year dollar debentures at about 185 basis points more than Treasuries, another person said.

The cost of insuring Asia-Pacific corporate and sovereign bonds climbed today. The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan rose 1 basis point to 123 basis points as of 8:50 a.m. in Hong Kong, the Royal Bank of Scotland Group Plc prices show. The gauge is on course to climb for a second day, according to data provider CMA.

The Markit iTraxx Australia index rose 1.5 basis points to 100.5 as of 9:34 a.m. in Sydney, according to National Australia Bank Ltd. The benchmark is on track for its highest close since March 31 after climbing for the first time in four weeks in the five-day period ended April 11, according to CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

The Markit iTraxx Japan index advanced 1.25 basis points to 87.3 basis points as of 8:54 a.m. in Tokyo, Citigroup Inc. prices show. The measure is on track for its highest close since March 25, 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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