RLPC: Hong Kong A-list property names make rush for cheap loans
NEW YORK, Sept 12
NEW YORK, Sept 12 (Reuters) - Hong Kong's A-list property names are making a dash before the year-end for fundraising in the loan market, taking advantage of a recent downward trend in pricing.
Property giants have been frequenting the bond market over the past year as bond pricing proved more attractive than for loans. However, as bond pricing rises, many are returning to the loan market.
Hang Lung Properties Ltd, for example, paid a 2.95% coupon on a seven-year bond issue in June, and this month had to pay 3.65% on a 4.5-year issue.
IFC Development Ltd, Sino Land Co Ltd and Sun Hung Kai Properties Ltd are the latest names to have surfaced in the loan market, and are in talks for deals. They follow closely on the heels of recent financings launched for property giants Henderson Land Development Co Ltd, Cheung Kong (Holdings) Ltd's indirectly-owned Fortune Real Estate Investment Trust and Wheelock Properties.
Pricing for top tier corporates have dropped drastically from last year. Sun Hung Kai set the tone at the beginning of this year with a 158bp all-in on a five-year loan, compared to a 176bp all-in on a three-year paper for IFC in early 2012.
IFC is now sounding lenders for a refinancing, while Sun Hung Kai is talking to banks for a five-year facility and hoping to get a pricing that is lower than Henderson's.
Henderson is offering respective all-in pricing of 125bp and 135bp on a four-year and a five-year loan.
Meanwhile, Sino Land is expected to seek a refinancing of its loans maturing next year.
POTENTIAL PRICE HIKE
Loan bankers say now would be the best time to seize low pricing, as many expect it to increase next year as banks' funding costs are on the rise. Several loan bankers said their funding costs have already started to increase and a few said costs have gone up by at least 25bp.
Funding costs have increased because of a more expensive interbank market as banks are tidying their balance sheets for the end of the year.
"Year-end liquidity has always been tight because banks need to manage their balance sheets thus need more deposits which made funding tighter," explained a banker.
Bankers said even if pricing does not increase, some banks could be stingy with liquidity thus borrowers will need to pay more to get funds.
A source from one of the property companies said current loan pricing is better than on bonds and with uncertainties over US policies on emerging markets, they would rather get a loan at the now-attractive pricing than risk a potential price hike.
Several top-tier names have already hit the syndicated loan market with wafer-thin pricing, testing lender appetite.
Among them, Henderson's top-level all-ins of 125bp and 135bp on a four-year and a five-year tranche of its HK$5bn refinancing marked the lowest-priced loans for a Hong Kong property name year to date.
Henderson's low pricing could see a few relationship banks retreat, bankers said.
"A couple of banks could not join because of funding costs and pricing does not meet their yield requirement," one of them said.
However, the developer is still expected to garner enough support from relationship banks.
Fortune REIT is providing slightly higher pricing, offering a blended all-in of 170bp based on a blended average life of 3.85 years. As a result, it is expected to attract more lenders in general syndication, bankers said.
Hong Kong's property sector has raised US$11.7bn of syndicated loans year to date, which already exceeds 2012's full-year volume of about US$9.7bn. With about US$5bn of loans in the market, volume is expected to double year-on-year.
The bulk of that volume is from top-tier names borrowing large amounts.
Wheelock Properties is raising US$1.2bn in two separate loans for new site developments in Ho Man Tin and Tseung Kwan O. The borrower is offering respective all-ins of sub-150bp and sub-160bp on a four-year and a five-year loan.
In addition to refinancing purposes, property companies are also looking at new funding requirements, which will further boost loan volume.
"We made quite a few land purchases this year and those are new funding requirement," one of the property borrowers said. "We will try to get the funds now if we can." (Editing By Jon Methven)