ASIA CREDIT CLOSE: Chinese property credits end the week on a sour note

Fri May 9, 2014 4:58am EDT

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HONG KONG, May 9 (IFR) - A decline in secondary-market demand plagued Chinese property bonds today as real-money investors and private banks acted on concerns that real estate prices would continue to decline and sold securities linked to the sector.

Chinese property bonds, especially those with high-yield ratings, fell about 5bp-6bp amid a drop in construction activity and falling prices.

Shui On Land's 8.7% 2018s and 9.75% 2020s were quoted at a cash price of 98. The high-yield bonds sold at par on April 30. Franshion's 2019s were last quoted at 99.25, after pricing the USD500m deal at par to yield 5.75% on March 13.

Investment-grade names were relatively resilient. China Resources Land priced a USD350m tap of its Baa1/BBB+ rated 4.375% 2019 Reg S bonds on May 8.

Those notes were last quoted near reoffer. Buyers liked the fact that the bonds priced cheaper than certain lower-rated credits, according to a credit analyst.

According to Nomura, new housing starts in China fell more than a quarter in the first quarter versus the same period last year. A property slump could shave a full percentage point off Chinese economic growth this year to below 7%, the Japanese firm said. That would be the lowest reading since 1990.

The overall weakness in the outlook for sector has also pushed property stocks to extend losses in both the Shanghai and Hong Kong equity indexes. The CSI real estate sub-index ended the week down 4.7%.

Fragile sentiment also hit the secondary performance of new 2019s and 2024s from Cinda, an asset management company that buys distressed debt from Chinese banks.

Those bonds were quoted 10bp wider on both tranches. The USD1bn 5-year deal priced May 7 to yield 250bp over US Treasuries, while the USD500m 10-year to yield 310bp over.

Meanwhile, property developer Country Garden did not issue a bond this week, despite expectations that it would sell US dollar bonds.

"Sentiment is a bit weak and the market will charge a pretty high premium if these guys come," according to a Singapore-based trader.

The bearish sentiment in Chinese property could continue for at least another two months, according to a credit analyst.

However, the market for real estate bonds could also start to show signs of improvement as early as next week.

"This is the start of the beginning of negative sentiment but I don't think it's going to last for a long time. Maybe by the end of next week we may see things turn around since positioning is fairly light," said the trader.

frances.yoon@thomsonreuters.com

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