HONG KONG (Reuters) - China Evergrande Group became Asia’s biggest bond market borrower excluding Japan so far this year after a $1 billion tap of its latest issue took the mainland property developer’s total sales so far to $6.6 billion.
China’s third largest developer said on Monday it had sold $200 million in three-year notes, and an additional $400 million each in four- and five-year bonds.
The notes carry coupons of between 9.5 and 10.5 percent, and have the same terms and conditions as $2 billion of bonds Evergrande sold last week.
Evergrande has now tapped bond markets for a total of $6.6 billion this year, according to data from Refinitiv, including those issued through subsidiary Hengda Real Estate Group.
Its latest sale took it past Chinese gaming giant Tencent, which sold $6 billion of bonds earlier this month.
Including Japan, Evergrande is Asia’s second-largest borrower this year, with the top spot taken by Japan’s biggest bank Mitsubishi UFJ Financial Group which has raised $7.3 billion in dollar bonds so far, according to Dealogic data.
Sales of Asian junk bonds have had a blistering start to the year on expectations for lower interest rates and as a market rally has stoked risk appetite, with a record $27.5 billion sold in the first quarter, Refinitiv data showed.
Evergrande will use the proceeds to refinance existing indebtedness and for capital expenditure, it added.
Fitch said in a release the developer expected to spend 20 billion yuan on non-property businesses, including the research, development and production of electric vehicles. This compares to the 16 billion yuan in non-property capex in 2018.
“The key concern is the company has been issuing more bonds since there’s been an easing in liquidity, both onshore and offshore, and part of the proceeds are not used for refinancing,” said S&P analyst Matthew Chow.
“We need to see whether its overall spending appetite including doing more financing via other means such as trust loans also increases. There could be a risk that the situation could be different from what we expected earlier, but we believe that it is still in the hands of the company.”
Evergrande has one of the highest debt ratios in the industry, but has pledged to cut its net gearing ratio - a leverage measure which compares its net debt against the book value of its equity - to about 70 percent by June 2020 from 240 percent in June 2017.
Though the ratio was lowered to 152 percent at the end of last year, its total borrowings rebounded from the end of June. Chief Financial Officer Pan Darong attributed the rise to investments in new energy vehicles, but added he expected the debt ratio would decline to an industry average soon.
Credit Suisse was sole lead manager for Monday’s bond sale.
Reporting by Clare Jim and Julia Fioretti; Editing by Kim Coghill and Louise Heavens
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