November 25, 2015 / 4:03 AM / 5 years ago

China's Country Garden turns to panda bond for low-cost refinancing

HONG KONG, Nov 25 (Reuters) - Country Garden said it is considering issuing yuan-denominated bonds sold by overseas entities on the mainland, known as panda bonds, as Hong Kong-listed Chinese developers increasingly tap the domestic bond market.

The move underscores the trend of developers diverging from dollar and dim sum bonds favoured earlier this year, as onshore rates tanked and China loosens its debt market.

A Country Garden official told Reuters the coupon rate of the panda bond was expected to be slightly higher than the domestic corporate bonds rate of 4.2-4.95 percent. China’s seventh-largest developer by sales would use the proceeds to repay existing loans.

China’s central bank is drafting new rules for yuan-denominated bonds sold by foreigners on the mainland, and plans to let more companies issue them and ease controls on how proceeds can be used.

China Merchants Group (Hong Kong) issued a 500 million yuan ($78.27 million) one-year panda bond early this year, priced at 3.03 percent, the first non-financial offshore company to do so.

Country Garden issued a total of 6 billion yuan of public corporate bonds in Shanghai in July and August, and 4 billion yuan of domestic bonds through private placement earlier this month through its mainland subsidiary.

“The panda bond will still be cheaper than senior notes,” the company official said, requesting anonymity because he was not authorised to speak to the media.

“We haven’t encountered any difficulties with regulators during the application process yet.”

Companies are allowed to raise as much as 40 percent of their asset value from the public domestic bond market, and another 40 percent from private placements.

After the quota is used up, companies need to resort to other refinancing channels onshore. Country Garden is using its Hong Kong-listed entity to issue the panda bond. ($1 = 6.3881 Chinese yuan renminbi) (Reporting by Clare Jim; Editing by Stephen Coates)

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