January 23, 2014 / 9:02 AM / in 4 years

ASIA CREDIT CLOSE: New Wanda issue sees Chinese property bonds widen

SINGAPORE, Jan 23 (IFR) - Chinese high-yield property bonds sank today on the back of the generous concessions on offer from a new 10-year issue from Wanda Properties.

Wanda, intending to sell long-dated paper, despite the fact that appetite had recently swung in the favour of shorter-dated bonds, had to make its offering as sweet as possible.

A trader said the initial guidance of 475bp over US Treasuries provided a rich 100bp premium to the bonds of peers like Franshion’s long-dated paper, which is rated at BB-. China Overseas Grand Oceans’ bonds are also 75bp inside where Wanda is making its offering.

Using the 5s/10s curve of similarly rated companies, such as China Overseas Finance (Baa1/BBB+/BBB+), which trade at a spread differential of 50bp, and Yuexiu Properties (Baa3/BBB-/BBB-), the 5s/10s curve is flat, meaning the new deal looks attractive.

“The price guidance for a new 10-year is crazy wide, and is a very steep curve to the only recently issued 5-year paper. Wanda is looking cheap,” said one credit analyst.

That juicy premium immediately sparked a sell-off of newly issued Chinese real-estate bonds to make room for the fresh supply. “The property sector is fragile and is vulnerable, and Wanda’s deal has just repriced the sector,” said a high-yield trader.

Long-dated high-yield Chinese property paper promptly sank 1pt. Other shorter-dated paper was similarly affected. Yuzhou’s 2019s widened 1pt in cash-price terms to around 97.5 from yesterday’s 98.5, while Cifi’s 2019s eased to 97.00, 2pts under the reoffer. KWG 2019s slipped 0.5pt to 98.50/99.25.

The only stable bond was that of China South City. “This is among the worst credits, but the paper is surprisingly holding up at 99.00, which is back to reoffer levels,” said the trader.

The repricing of the property sector could spill over into the high-yield Chinese corporate segment, but a lack of supplies may just provide technical support to the bonds.

Meanwhile, Mongolian Mining Corp’s 2017s were heard to have changed hands at a range of 60.00 to 70.00, an improvement from the distressed levels of 53.00/56.00 last August, when Moody’s downgraded the company to Caa1 from B3. Concerns remain over its liquidity position and its ability to invest to expand its capacity.

Asian credit spreads showed less dramatic movements. The iTraxx Asia IG index was flat at 141bp/143bp.


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