October 31, 2018 / 3:17 AM / a year ago

UPDATE 3-Evergrande chairman buys $1bln in company bond sale, coupons up to 13.75 pct

(Adds further analyst comment, context)

By Clare Jim and Julia Fioretti

HONG KONG, Oct 31 (Reuters) - China Evergrande Group on Wednesday sold $1.8 billion of bonds with coupons as high as 13.75 percent but in a rare move, chairman Hui Ka Yan bought $1 billion of the offer.

Hui is the founder of Evergrande, the debt-laden property developer whose interests also span tourism and healthcare as well as a Chinese soccer club.

Evergrande is China’s second-largest property developer by sales and has been under pressure to raise funds. Sources told Reuters last month the firm was seeking to raise about $1.5 billion using its Hong Kong office tower as collateral.

The company on Wednesday sold $1.8 billion in two- four- and five-year debt. Hui and a wholly-owned company bought $500 million of the $645 million four-year notes, yielding 13 percent, and the same of the $590 million in five-year paper, which carried a coupon of 13.75 percent.

The company also sold $565 million in two-year notes with a coupon of 11 percent. Final demand for the bonds, just before the books were closed, topped $2.3 billion, according to a breakdown reviewed by Reuters.

The proceeds will be used to refinance existing offshore debt, the company said.

Analysts said it was rare to see a company executive participate in a bond deal to such an extent. Hui also owns 71.7 percent of Evergrande’s shares.

“He’s (Hui) lending money back to the company, but at a high return,” said analyst Christopher Yip, a senior analyst at S&P Global Ratings, the ratings agency.

Earlier this month, Evergrande paid out a HK$16.8 billion ($2.1 billion) dividend, covering the past two financial years. Chairman Hui’s share, based on his shareholding, would have come to $1.53 billion.

The chairman’s bond purchases raised questions, said Charles Macgregor, the Singapore-based Asia head of Lucror Analytics.

“The optics of the company raising debt capital at a time when it is declaring large dividends, some of which are then reinvested in this high-coupon company debt, are very poor,” Macgregor said.

One banker involved in the deal agreed that Hui’s participation was unusual but said it showed the chairman had confidence in the company and bought the longer-dated paper to demonstrate that, since bond buyers in the two-year notes would all be paid back before him.

Chinese property developers are struggling with higher debt costs as rising U.S. interest rates push up financing costs for high-yield borrowers.

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

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

Evergrande’s bonds were assigned a B credit rating by ratings agency S&P - deep into junk-rated territory - and a B2 rating by Moody’s service.

Credit Suisse and China CITIC Bank International were joint global coordinators for the Evergrande deal.

$1=6.9657 Chinese yuan renminbi Reporting by Clare Jim and Julia Fioretti; Additional reporting by Jennifer Hughes; Editing by Darren Schuettler, Neil Fullick and Louise Heavens

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