October 30, 2018 / 7:38 AM / a year ago

China Evergrande unit offers to pay 13.75 pct for 5-yr dollar bonds

HONG KONG, Oct 30 (Reuters) - Hengda Real Estate Group Co Ltd, a unit of heavily indebted property developer China Evergrande Group, is offering to pay a 13.75 percent coupon on a five-year dollar bond, underscoring its financing strains.

The deal comes as China’s second-largest property developer by sales is seeking to raise about $1.5 billion by offering its Hong Kong office tower as collateral, sources told Reuters.

Hengda was seeking to sell two-year, four-year and five-year dollar bonds with coupons of 11 percent, 13 percent and 13.75 percent, respectively, on Tuesday, according to a term sheet seen by Reuters.

The company plans to use the proceeds to “primarily refinance existing offshore indebtedness.”

Evergrande, which has one of the highest debt ratios in the industry and had one of the highest debt piles in China, had offshore debt of $16.4 billion as of end-June.

The bonds are expected to be rated B2 by Moody’s, B by S&P and B+ by Fitch.

Chinese property developers face higher debt costs amid rising U.S. interest rates which have pushed up financing costs for high-yield borrowers.

Compounding the problem, China’s red-hot property sector is slowing, with homes sales falling in September for the first time since April.

Property companies went on a borrowing spree over the past years, fuelled by cheap interest rates and ample dollar supply, but a lot of that is now coming due.

Chinese developers have $10.8 billion of U.S. dollar debt maturing this year, and a further $11.5 billion maturing next year.

That compares with just $6.9 billion that matured in 2017, according to Refinitiv data.

Credit Suisse and China CITIC Bank International are joint global coordinators for the Hengda deal. (Reporting by Julia Fioretti; Editing by Subhranshu Sahu)

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