Evergrande Downgraded at UOB on New Dollar Bonds, Mounting Debts

  • Stock cut to hold from buy; Moody's cut bond rating on Monday
  • Builder sells $700 million of 8 percent dollar bonds due 2019

Evergrande Real Estate Group Ltd., the Chinese developer piling on debt for acquisitions, was downgraded at UOB Kay Hian Ltd. after the builder announced plans to issue dollar debt to refinance a maturing bond.

The stock was cut to hold from buy by UOB, the securities unit of United Overseas Bank Ltd., on Tuesday, citing its deteriorating debt levels. The developer plans to issue $700 million of 8 percent dollar notes due 2019 to refinance the 3.7 billion yuan ($563 million) onshore notes maturing Jan. 19, it said in a Hong Kong stock exchange filing on Tuesday.

Mounting borrowings at the developer prompted Moody’s Investors Service on Monday to reduce its corporate family rating on Evergrande. The company, controlled by billionaire Chairman Hui Ka Yan, was the most active buyer among listed developers last year after accounting for more than one-quarter of $25 billion in transactions, according to data compiled by Bloomberg.

The developer’s latest “high-cost” dollar bonds means “little chance of a lowered net gearing in 2015,” UOB’s Hong Kong-based property analyst Edison Bian wrote in a note Tuesday. “These issuances will partly offset the improvement from the low-cost 40 billion yuan of onshore financing and increase its forex exposure.”

Perpetual Bonds

Evergrande shares declined 1 percent to HK$5.69 as of 11:20 a.m. in Hong Kong. The stock has fallen 17 percent this year compared with a 9 percent drop in the city’s benchmark Hang Seng Index.

Evergrande is the most indebted of 20 major Chinese developers tracked by Bloomberg Intelligence. The developer’s net debt-to-equity leverage rose to a record high of 121.8 percent at the end of June, according to data compiled by Bloomberg. In the second half, it incurred additional borrowing of 80 billion yuan, according to Bian.

The builder last month issued $1.5 billion of perpetual securities at a 9 percent distribution rate after a streak of acquisitions. The “expensive” borrowing, in addition to its existing perpetuals of 52.4 billion yuan, further shored up its gearing when considering perpetual securities as debt, according to UOB’s Bian.

— With assistance by Emma Dong

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